Britain’s annual inflation rate took a significant dip in September, reaching its lowest point in three years and fueling speculation that the Bank of England will continue its easing of interest rates. The Consumer Prices Index (CPI) clocked in at 1.7 percent, comfortably below the Bank of England’s target of 2 percent. This represents a notable decline from August’s 2.2 percent figure.
The Office for National Statistics (ONS) attributed the inflation drop primarily to lower airfares and petrol prices. This welcome decrease, however, was partially offset by a rise in food price inflation, a trend not witnessed since early 2022.
Analysts had predicted a 1.9 percent inflation rate, making the actual figures even more significant. This reinforces the expectation that the Bank of England will likely cut interest rates for a second time in November.
“Lower airfares and petrol prices were the biggest driver of this month’s fall,” explained Grant Fitzner, chief economist at the ONS. He acknowledged the food price inflation offset, adding, “It is absolutely amazing to see such a dramatic drop in the UK’s CPI number, and the news had brought nothing (but) good things for the Bank of England,” remarked Naeem Aslam, chief investment officer at Zaye Capital Markets.
In August, the Bank of England took the unprecedented step of reducing its key rate for the first time since early 2020, bringing it down from a 16-year high of 5.25 percent. This move was prompted by the return of inflation to more normal levels. While the Bank of England opted against a second consecutive rate cut in September, the latest inflation figures strongly suggest that a reduction in November is highly probable.