UK inflation has eased to 1.7%, dipping well below the Bank of England target for the first time since 2021.
It’s a drop on the 2.2% recorded in last month’s Consumer Prices Index (CPI). Analysts had expected a fall, but only to 1.9%.
The Bank of England (BoE) has been trying to bring inflation down by keeping interest rates higher.
Money blog: Shock fall puts inflation below target for first time in three years
It recently trimmed the base rate to 5% and today’s inflation figure is expected to increase the likelihood of further cuts – welcome news for people with mortgages.
However, it could mean people’s benefits go up less than they may have been expecting.
Falling inflation doesn’t mean things are getting cheaper – only that prices are going up more slowly.
The 1.7% rate published by the Office for National Statistics (ONS) measures the overall rise in prices during the 12 months to September 2024.
Inflation peaked at 11.1% in October 2022 after energy prices soared at the start of the Ukraine war.
It fell to 2% in May and July this year, but then edged higher again.
The last time it was below the government’s target was April 2021, when it was 1.5%.
The latest drop in inflation was mainly driven by falls in the cost of fuel and air fares, said the ONS.
On the flip side, inflation on food and non-alcoholic drinks went from 1.3% to 1.8% – the first increase since March last year.
But “core inflation” – which strips out volatile elements such as food and energy and gives a more reliable picture – fell from 3.6% to 3.2%.
Mortgage holders can now look forward to what looks like an almost certain cut in interest rates from the Bank of England when it meets on 7 November.
A reduction from 5% to 4.75% was already viewed by financial experts as highly likely.
Experts say a cut in the base rate from the Bank of England is now almost certain. Pic: PA
The BoE committee meets again in the week before Christmas and holds its first 2025 meeting on 6 February.
While good for borrowers, falling interest rates are often bad news for savers as banks usually peg back their rates to match the Bank of England.
This month’s inflation rate is also normally used to set April’s increase on benefits including jobseeker’s allowance, maternity allowance, housing benefit and universal credit.
The government has yet to confirm the 1.7% figure will be used, but is likely to confirm it in the budget in two weeks.
Pensions will increase by 4.1% however, due to the triple-lock policy.
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Looking ahead, inflation is expected to increase to some degree next month due to rising energy costs, with analysts at Pantheon Macroeconomics believing this month’s figure is “the low point for CPI inflation”.
“Oil price rises mean energy costs will rebound, while we expect the chancellor to boost duties in the October budget,” they said.
Darren Jones, chief secretary to the Treasury, said today’s inflation announcement was “welcome news for millions of families” but there was “still more to do to protect working people”.
He said the government remained focused on “bringing back growth and restoring economic stability”.