Rob Wood, the chief UK economist at Pantheon Macroeconomics, said the drop in services inflation “massively undershot” both economists’ and the MPC’s expectations.
The slowdown in services inflation “will leave Governor Bailey chomping at the bit to enact ‘aggressive’ rate cuts, which we interpret as reductions at consecutive policy meetings”, he added.
Gora Suri, economist at PwC, said: “This suggests we are very much at the end of the disinflationary process, which will be welcome news for policymakers and of course, consumers and businesses.”
Mortgage pain
However, there is one group of people in the UK who are still seeing their living costs rocket. That is mortgage holders coming to the end of their fixed rate deals.
In stark contrast to the falling headline inflation rate, owner occupiers’ housing costs surged at the fastest pace on record since March 1992.
CPI including owner occupiers’ housing costs – or CPIH – rose 7.2pc year-on-year in September, up from 7.1pc a month earlier and more than double the 3.1pc rate three years earlier, according to the ONS.
This was because, even though mortgage rates have been falling, they are still far higher than before the Bank of England began raising interest rates at the end of 2021.
The average rate on a five-year fixed-rate deal on Wednesday was 5.06pc, still roughly double the average 2.64pc rate in December 2021, according to Moneyfacts. This means mortgage holders are seeing their monthly payments rise when their fixed rate deals expire and they move on to higher rates.