UK inflation fell to 1.7% in the year to September, the lowest rate since April 2021, the Office for National Statistics (ONS) said.
According to new figures, the Consumer Price Index (CPI) rose by 1.7% in the 12 months to September 2024, down from 2.2% in August. This means inflation has fallen below the government-set target of 2% for the first time since 2021.
ONS chief economist Grant Fitzner said: “Inflation eased in September to its lowest annual rate in over three years. Lower airfares and petrol prices were the biggest driver for this month’s fall.”
Core inflation, which excludes energy, food, alcohol and tobacco, dropped to 3.2% from 3.6% in August.
Price rises in the services sector, one of the motors of the UK economy, eased to 4.9% last month from 5.6% in August, hitting its lowest rate since May 2022.
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Investors had expected inflation to fall to 1.9%. Inflation has been on a downward trajectory since hitting a peak of 11.1% in October 2022, driven by increases in energy prices and a sharp rise in food prices.
The latest figures also raise pressure on the Bank of England to cut interest rates from the current level of 5% to keep inflation at its target level.
Lindsay James, investment strategist at Quilter Investors, said: “For the first time in more than three years inflation is back below the Bank of England’s 2% target. With inflation falling below this level and the pace of wage growth slowing, the conditions appear ripe for another rate cut at the Bank of England’s next decision in early November, and maybe even the one after in December too.
James added: “This will please the government in the run-up to the hotly anticipated budget, where we are being repeatedly told tough decisions are to be announced, so any sliver of good economic news will likely be pounced upon.”
BoE governor John Bailey had previously indicated a desire to bring interest down, saying earlier this month that rate cuts could become “more aggressive” if needed.
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Chief secretary to the Treasury, Darren Jones, said the drop in the pace of price rises “will be welcome news for millions of families”.
“However, there is still more to do to protect working people, which is why we are focused on bringing back growth and restoring economic stability to deliver on the promise of change,” he added.
The September figure is used by the government to decide a number of tax and spending changes for next year, and means UK state benefits will rise by 1.7% next year.
It also confirms that state pensions will increase by 4.1% next April, due to the triple-lock policy.
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