UK inflation drops to 4-month low, paving way for December rate cut

UK inflation is on a downward trajectory, having reached its lowest point in four months, according to October's official statistics. This decline in the annual inflation rate is sparking optimism for an interest rate cut from the Bank of England in the near future.

Inflation in the U.K. fell to a four-month low in October, official figures showed Wednesday, in a move that has raised expectations of another Bank of England interest rate cut next month.

The Office for National Statistics said the annual rate of inflation, as measured by the consumer prices index, fell to 3.6% in October from 3.8% the previous month.

Though the rate was the lowest since June, it was a bit higher than the 3.5% that most economists were forecasting for the month. The main downward influence came from domestic energy bills, while a rebound in food prices partly offset that.

Even though inflation remains above the bank's 2% target, economists said policymakers will likely sanction a quarter-point rate cut at their next meeting on Dec. 18, especially as the labor market has weakened and economic growth has stalled.

The latest inflation reading comes a week before Treasury chief Rachel Reeves delivers her long-anticipated budget, in which she is widely expected to raise taxes to fill a multibillion-pound shortfall in the public finances.

Following the inflation data, Rachel Reeves said she was planning to take "targeted action" in her budget to help ease the cost of living.

"Though the conditions for a December interest rate cut are falling into place, the Budget is a last obstacle as rate-setters will want to gauge the effect of the policies announced before authorising another rate reduction," said Suren Thiru, economics director at accounting institute ICAEW.

Earlier this month, the bank kept its main rate unchanged at 4%, with a wafer-thin majority of policymakers needing more information on how swiftly inflation will fall back towards their target before backing another cut in borrowing costs.
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Source: EconomicTimes
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