In a surprise drop, UK inflation has fallen to 1.7% in the year to September. This is the first time the rate has fallen below the Bank of England’s (BoE) target rate of 2% since April 2021. This is positive news for mortgage holders as it has increased the likelihood of interest rates being cut in November.
What has caused this sudden inflation drop?
According to the Office for National Statistics (ONS), the unexpected drop in inflation is mainly due to lower airfares and petrol prices. Although airfares usually decrease after the summer months, the prices dropped by more than normal. Fuel prices were also much lower, falling by 10.4% in September. Inflation of prices for food and non-alcoholic drinks, on the other hand, increased for the first time since March 2023, rising from 1.3% to 1.8%.
How will the UK inflation drop to 1.7% affect interest rates?
The current BoE base rate is 5%. The Monetary Policy Committee (MPC) originally voted to cut the base rate to 5% in August 2024, which was the first time it had been cut since March 2020. The committee voted to keep it at 5% in September after the inflation rate remained at 2.2%.
It has been widely expected that the next base rate reduction will happen following the MPC’s review on 7th November. The predicted cut is from 5% to 4.75%. With the release of the latest inflation rate figure, however, a second base rate cut is also anticipated for December.
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