UK inflation falls to lowest level in over 3 years, cementing
expectations for another rate cut
Send a link to a friend
[October 16, 2024] By
PAN PYLAS
LONDON (AP) — Inflation in the U.K. has fallen to its lowest level for
more than three years, official figures showed Wednesday, a drop that
has cemented market expectations that the Bank of England will lower
interest rates at its next policy meeting in November.
The Office for National Statistics said consumer prices rose 1.7% in
September, down from 2.2% the previous month, largely as a result of
lower air fares and petrol prices. But price pressures were lower across
the board, even in the services sector, which has worried policymakers
as it accounts for around 80% of the British economy.
The decline was bigger than the 1.9% analysts had anticipated, and means
that inflation is below the central bank's target rate of 2% for the
first time since 2021.
As a result, the bank's rate-setting panel is expected to further reduce
its main interest rate when it meets again in early November to 4.75%
from 5%. It previously cut borrowing costs in August, the first
reduction since the early days of the coronavirus pandemic in early
2020.
“A quarter-point rate cut in November is now effectively a done deal,
and this report certainly makes the path to a consecutive cut in
December much clearer,” said Luke Bartholomew, deputy chief economist at
abrdn, formerly Aberdeen Asset Management.
Central banks around the world dramatically increased borrowing costs
from near zero during the coronavirus pandemic when prices started to
shoot up, first as a result of supply chain issues built up and then
because of Russia’s full-scale invasion of Ukraine which pushed up
energy costs.
With higher interest rates helping to reduce inflation from multi-year
highs by making it more expensive for businesses and consumers to
borrow, they have started cutting interest rates. The U.S. Federal
Reserve, for example, slashed its main rate last month, while the
European Central Bank, which sets monetary policy for the 20 countries
that use the euro, is expected to cut again on Thursday.
[to top of second column] |
A woman with an umbrella stands in front of the Bank of England, at
the financial district in London, , Nov. 3, 2022. (AP Photo/Kin
Cheung, File)
The bank is widely expected to
reduce borrowing costs again at its next meeting in November,
especially as it will have details of the government’s budget on
Oct. 30.
The new Labour government has said that it needs to plug a 22
billion pound ($29 billion) hole in the public finances and has
indicated that it may have to raise taxes and lower spending, which
would likely weigh on the near-term outlook for the British economy
and put downward pressure on inflation.
The lower inflation rate in September is a boon for Treasury chief
Rachel Reeves as she prepares to deliver her first budget, since
many annual benefits from the government are linked to September's
rate. The prospect of lower borrowing rates in the months ahead is
also welcome as it will reduce the government's debt-related
interest payments and potentially give her more leeway.
However, it's bad timing for many of the most vulnerable households
in the U.K., since benefits are based on the inflation rate measured
in September. Were they linked to the October rate, when inflation
is widely expected to rise as a result of an increase in domestic
energy bills, they would have got more.
“This temporary fall is badly timed for millions of low-to-middle
income families as it will result in a lower increase in their
benefits next year,” said Lalitha Try, economist at the Resolution
Foundation.
All contents © copyright 2024 Associated Press. All rights reserved |