The UK's headline inflation rate has shown a notable decrease in September, coming in lower than anticipated, primarily due to a significant fall in airfares and motor fuel costs. This reduction has stoked expectations for further rate cuts by the Bank of England in the near future. Britain's annual inflation rate decreased to 1.7% in September from 2.2% in August, as reported by the Office for National Statistics.
This new figure is below the consensus estimate of 1.9% for the month, marking the lowest inflation rate observed in the past 3.5 years. When analyzed on a month-over-month basis, consumer prices remained unchanged following a modest rise of 0.3% previously, while a minor increase of 0.1% was anticipated.
In a complementary perspective, services inflation saw a reduction to 4.9% from its previous level of 5.6%, missing the Bank of England's expectation of 5.5%. Upon excluding volatile items such as food and energy, the annual inflation rate stood at 3.2%, a decrease from the earlier figure of 3.6% and below the predicted 3.4%.
A comparison of monthly core consumer prices reveals a slight uptick of 0.1%, falling short of the revised increase of 0.5% and the anticipated rise of 0.3%. According to Grant Fitzner, Chief Economist at ONS, the substantial decrease in airfares and petrol prices played a pivotal role in the overall decline observed this month.
He noted, 'Lower airfares and petrol prices were the biggest driver for this month's fall. These were partially offset by increases for food and non-alcoholic drinks, marking the first instance of food price inflation tightening since early last year.' The data indicates that airfares plummeted by 34.8% in September, influenced by reductions in pricing for domestic, European, and long-haul flights.
The month-over-month petrol prices also reflected a decline, dropping to 1.368 pounds sterling per liter from 1.536 pounds per liter in September 2023. Despite the reductions in airfares and petrol prices, the food and non-alcoholic beverages sector recorded a 1.9% year-over-year price increase, compared to a 1.3% rise in August.
This latest report marks the first inflation increase for these products since March 2023, with significant upward contributions from categories such as milk, cheese, and eggs, alongside mineral waters, soft drinks, juices, and various fruits. As services inflation has dipped below the Bank of England's forecasts, analysts at ING anticipate a potential acceleration of rate cuts moving forward, especially beyond November.
They commented, 'If we're right, then we think the Bank of England can pick up the pace of cuts beyond November. We expect a cut in December and at every meeting until rates reach 3.25% next summer.' There are hints from Governor Andrew Bailey regarding this likelihood in a recent newspaper interview, with expectations for further disclosures during his public engagements in Washington next week..