UK inflation drop triggers rate cut bets
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The news: UK inflation fell sharply to 1.7% in September, down from 2.2% in August, marking the lowest level in over three years, the country’s Office for National Statistics said.
The numbers: The decline, driven by lower airfares and petrol prices, surprised markets and heightened expectations for interest rate cuts from the Bank of England.
Many now anticipate a 0.25% cut in November, with a potential second cut in December.
Core inflation dropped to 3.2%, and the crucial services inflation fell to 4.9%, from 5.6% in August, its lowest level since May 2022.
Factory prices declined by 0.7%, the largest fall since October 2020.
The context: The falling inflation eases pressure on the government ahead of Chancellor Rachel Reeves' first budget on 30 October, bringing modest fiscal relief.
Household energy bills, however, are still rising, keeping pressure on inflation expectations.
What they said: Analysts at AJ Bell and KPMG UK pointed to a "nailed on" November rate cut.
Suren Thiru, economics director at ICAEW said the upcoming Budget remains a key consideration for further rate cuts.
"Though the stars are aligning for a November rate cut, the upcoming Budget is the final hurdle as rate setters will want to assess the inflationary impact of any measures announced before loosening policy again," said Thiru.
The sources: Office for National Statistics , Reuters, BBC
