The UK's annual inflation rate fell sharply to 4.6% in October on the back of a drop in the cost of gas and electricity, outperforming City forecasts.
The steep decline in last month’s consumer prices index (CPI) reading from 6.7% in September beat the 4.8% predicted by a poll of economists for Reuters.
The fall does not mean prices are going down, only that they are rising less rapidly. Nevertheless, it is expected to ease fears that the Bank of England will increase interest rates again this year, despite being more than twice its 2% target.
It also means Rishi Sunak has achieved his target set in January of halving inflation by the end of the year from the 10.7% average in the last quarter of 2022.
Sunak said: “While it is welcome news that prices are no longer rising as quickly, we know many people are continuing to struggle. We must stay the course to continue to get inflation all the way back down to 2%.
“In January I made halving inflation this year my top priority. I did that because it is, without a doubt, the best way to ease the cost of living and give families financial security. Today, we have delivered on that pledge.”
The reading for core inflation, which strips out volatile items such as energy and food, also dropped by more than analysts expected. The Office for National Statistics (ONS) said it slid from 6.1% to 5.7%, slightly below the 5.8% forecast by City economists and the Bank of England.
Paul Dales, the chief UK economist at the consultancy Capital Economics, said the decline was because of the global influence of core goods inflation, which slowed from 4.7% to 4.3%.
“But some of it was due to services inflation falling from 6.9% to 6.6%. The Bank of England views the latter as a key barometer of the persistence of inflation and it came in lower than its forecast of 6.9%.”
Dales forecast that the downward trend in inflation would stall over the next few months before starting to edge lower again in February,
At the heart of October’s decline in CPI was the 23% year-on-year cut in the energy price cap for the typical annual gas and electricity bill, from £2,500 last October to £1,923 the same month this year.
Food price inflation was the lowest since 2021 after a drop in the annual rate of increase to 10.1% in October, down from 12.2% in September and a recent high of 19.2% in March 2023 – the highest annual rate seen for over 45 years.
The ONS said that the price of food was about 30% higher than it was in October 2021.
The shadow chancellor, Rachel Reeves, said: “The fall in inflation will come as some relief for families struggling with the cost of living.
“But now is not the time for Conservative ministers to be popping champagne corks and patting themselves on the back.
“After 13 years of economic failure under the Conservatives, working people are worse off with higher mortgage bills, prices still rising in the shops and inflation twice as high as the Bank of England’s target.”
This article was written by Phillip Inman from The Guardian and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.