UK inflation fell below the 2% target, reaching its lowest point in over three years in September. This development places additional pressure on the Bank of England (BoE) to consider policy easing during their meeting in November.
According to the Office for National Statistics, consumer price inflation declined more than anticipated, dropping to 1.7% in September from 2.2% in August. This marks the lowest level since April 2021, while forecasts had anticipated a rise to 1.9%. This decrease was largely influenced by reduced airfares and petrol prices, though food and non-alcoholic beverage prices made the largest upward contribution. On a monthly basis, the consumer price index held steady, following a 0.3% increase the previous month, contrary to economists' expectations of a 0.2% increase.
Core inflation, which excludes energy, food, alcohol, and tobacco prices, eased to 3.2% from 3.6% in the prior month, falling short of the forecasted 3.4%. Additionally, services inflation notably decreased to 4.9% from 5.6%, while goods prices dropped by 1.4%.
Economists from ING suggest that this data strongly indicates a dovish stance from the BoE, potentially paving the way for interest rate cuts in the remaining meetings of the year.
The BoE had held the benchmark rate at 5.00% during the September meeting after reducing it by a quarter-point in August, the first reduction since 2020. The next policy announcement is scheduled for November 7.
Another report from the ONS indicated that output prices decreased for the first time in eight months during September, falling by 0.7% annually. This reversed a 0.3% rise in August, with economists having forecasted a 0.6% decline. On a monthly basis, the decrease in output prices intensified to 0.5% from 0.3% in the previous month, with an expectation for another 0.3% fall.
Input prices saw a 2.3% annual decline following a revised 1.0% fall in August. Monthly input prices decreased by 1.0% after a 0.3% drop in August, surpassing the expected 0.5% decline.
