Inflation falls to 1.7%

Inflation in September fell to 1.7%, according to the latest Consumer Price Index data from the Office of National Statistics (ONS).

The rate, down 0.5 percentage points on the previous month’s figure, marks the slowest rate of price growth since April 2021 and sees inflation fall to below the Bank of England’s 2% target rate.

The drop in inflation comes largely from falls in the prices of airfares and petrol, with lower oil prices also helping reduce raw materials costs on businesses. These falls were, however, partially offset by an increase in the rate of inflation in food and drink prices in supermarkets, the first such rise in over a year. Increases in housing costs for both renters and homeowners also continued outpace inflation, but are omitted from the CPI basket of goods used by the ONS to calculate inflation, highlighting continued pressure on household finances.

Financial markets have raised their expectations of a further drop in interest rates at the next meeting of the Bank of England’s Monetary Policy Committee. The Bank’s economists have previously held rates steady in recent months, arguing that inflationary pressures in the wider economy have persisted as shown by higher rates of inflation in some product categories. Forecasts now anticipate consecutive 0.25 percentage point falls in the Bank of England base rate at the MPC’s upcoming meetings in November and December 2024.

The September CPI figure from the ONS is also used by government in calculating annual increases to benefits such as Universal Credit from the following April. Lower than expected inflation means rises to Universal Credit are likely to be outpaced by inflation by next year. The fall will also bring some good news for the Chancellor ahead of her upcoming Budget thanks to the prospect of a lower-than-expected benefits bill for the Treasury. The State Pension will rise 4.1% in-line with average wage growth under the Triple Lock mechanism.