UK inflation fell to the lowest rate in two years last month, falling to 4.6% in the year to October from 6.7% in September.
Economists have said the main reason inflation has fallen from its peak of 11.1 per cent in October 2022 is due to a reduction in the energy price cap, which limits what suppliers can charge consumers per unit of energy.
Grant Fitzner, Chief Economist at the Office for National Statistics (ONS), said price rises slowed in October as “last year’s steep rise in energy costs has been followed by a small reduction in the energy price cap this year.”
Dr. Roger Barker, Director of Policy at the Institute of Directors said “Although this month’s sharp decline in inflation was already baked into the numbers, due to the downward adjustment of the energy price cap, it is still an encouraging development.”
“The rate of core inflation (excluding food and energy), which fell from 6.1% to 5.7%, is still relatively high. However, there was a noticeable easing of inflationary pressure across a range of categories of goods and services this month. This must give hope that higher interest rates are starting to work, and that they won’t need to rise further.”
“However, it’s probably unrealistic to expect rate cuts until well into 2024, given the continued tightness of the labour market and the stubbornness of inflationary pressures in some areas.”
Alpesh Paleja from Confederation of British Industry, Lead Economist, said “A big drop in inflation was always expected in October, with last year’s energy price cap rise falling out of the annual comparison. But even taking this into account, inflation is heading in the right direction and the Government’s pledge to halve inflation by the end of the year has been met.”
“Inflation should continue to fall in the months ahead. But the decline is set to be slow, and the CPI rate is likely to remain above the Bank of England’s target for much of next year. It’s worth noting that domestic price pressures remain sticky, and uncertainty over the labour market data makes it difficult to gauge how much this is adding to inflationary pressure.”
“Nonetheless, we’ve likely reached the peak of rising interest rates, and many are expecting the Bank of England to cut rates at some point next year. But with inflation set to fall slowly and the Bank of England being clear in their “higher for longer” message, businesses and consumers shouldn’t expect a significant reduction in rates anytime soon.”
Suren Thiru, Economics Director at ICAEW said “This dramatic drop suggests that the UK has turned the corner in its battle against soaring inflation, particularly given the fall in core inflation, which indicates that underlying price pressures are also easing.”
“While the Prime Minister has achieved his target to halve inflation this year, this owes more to the downward pressure on prices from falling energy costs and rising interest rates than any government action.”
“Although subsequent declines will be more modest, the drag on demand from a softening jobs market and high interest rates may mean that inflation falls back to the Bank of England’s 2% target more quickly than they currently expect.”
“This fall in inflation seals the deal on a December interest rate hold and may drive a three-way voting split among rate setters with a member voting for a rate cut as concerns over a flatlining economy grow.”