- CPI falls to 1.7% in September, down from 2.2% in August and below expectation
- Lower air fares and falling prices at the pump the biggest contributors to the fall
- Most sectors fell though food inflation jumped from 1.3 to 1.9%
Danni Hewson, AJ Bell head of financial analysis, comments on the latest UK inflation figures:
“A real milestone has been reached today with inflation falling below the Bank of England’s 2% target for the first time in over three years.
“Lower air fares and falling prices at the pump have helped offset a slight rise in food inflation but when compared with those double digit increases in food prices endured by households in 2022 and 2023, these figures are pretty benign.
“The most important thing to remember whilst thinking about the inflationary picture is that for the most part prices went up and stayed at their elevated levels. Wages have nudged higher, as have benefit payments, but most people will still find their standard of living is way below where it was before the pandemic.
“Today’s data is massively important for many people on low incomes who rely on benefits to help them get by. Over the past couple of years, they’ve seen quite chunky increases in the amount of cash that drops into their accounts every month but with inflation falling below the level that had been anticipated it sets up a benefit increase way below what they’ve come to expect.
“Last year the standard allowance for a couple over the age of 25 jumped by almost £40 a month. From April next year the increase will be just over £10, considerably less than the state pension which enjoys the protection of the triple lock.
“It does mean a smaller increase in benefit payments than the government might have been expected to pay but that will be a drop in the ocean when you consider Rachel Reeves is on the prowl for a whopping £40 billion.
“But today’s number sets up a rare cut at next month’s Bank of England MPC meeting. Core inflation and service inflation have both cooled considerably and the cost of raw materials has fallen back again.
“A quarter percentage point cut is pretty much nailed on, and expectation of a second rate cut in December has also jumped up today with markets thinking there’s a better than 80% chance we will end the year with rates down at 4.5%.
“Though there are no guarantees. There will be nine individuals carefully considering every scrap of data and poised to change their minds depending on what the chancellor pulls from her hat in two weeks’ time.
“One concern is consumer confidence. With inflation way down and interest rates falling, why are people feeling so nervous about their finances? The answer might be found in the Budget and the commentary around it.”
Source: Department for Work and Pensions, AJ Bell. Based on 1.7% expected increase to Universal Credit standard allowances from April 2025, rounded up to the nearest penny.
