Stay informed with free updates
Simply sign up to the UK inflation myFT Digest — delivered directly to your inbox.
UK inflation fell more than expected to a three-year low of 1.7 per cent in September, prompting traders to increase bets on further rate cuts from the Bank of England this year.
Wednesday’s data release by the Office for National Statistics shows that inflation has come back under the BoE’s 2 per cent target for the first time since April 2021.
The annual increase in consumer prices is less than the 1.9 per cent forecast in a Reuters survey of economists and compares with August’s figure of 2.2 per cent. The retreat was driven by lower airfares and petrol prices.
The numbers will come as a boost to Sir Keir Starmer’s government just two weeks before what promises to be a tough Budget containing steep tax rises. Chancellor Rachel Reeves is looking to close a funding shortfall of £40bn, according to officials close to the Budget process.
The numbers led investors to increase bets that the BoE would lower interest rates for a second time in its November meeting following its quarter-point reduction in August, and then make an additional cut in December.
Traders had previously put the chance of two quarter-point rate cuts by the end of the year at roughly 50 per cent, according to levels implied in swaps markets. That increased to 75 per cent after the inflation release. The pound was down 0.6 per cent against the dollar at $1.30 on Wednesday.
A November cut already looked “nailed on before today’s release”, said Paul Dales…
