The fall in UK inflation could fan expectations that the Bank of England might cut interest rates, City analysts have said.
The Consumer Price Index (CPI) slid to 1.5% in October from 1.7% the previous month, according to the Office for National Statistics (ONS).
The decrease, which was greater than analysts had predicted, suggested households will have more spending power ahead of Christmas and next month’s General Election.
Economists have said falling prices will drive calls for lower interest rates, potentially following moves by the US and European central banks to make cuts.
Howard Archer, chief economic adviser for the EY Item Club, said: “Inflation dipping more than expected to 1.5% in October will also likely fan expectations that the Bank of England will cut interest rates before too long if the economy fails to pick up from its current struggles.
“Consumer price inflation looks likely to remain close to 1.5% over the rest of the year and through the early months of 2020 – and it could conceivably edge down further.”
Last week the Bank of England voted to hold rates, despite two members of its Monetary Policy Committee (MPC) calling for a cut.
The policymakers referenced signs that the labour market was cooling, while colleagues were cautious about Brexit uncertainty and a slowdown in the global economy.
David Cheetham, chief market analyst at XTB, agreed that the decrease will push calls for the cut but time is not on the side of the MPC.
He said: “A larger than expected fall in the most widely followed gauge of inflation could lead to further calls for the Bank of England to lower interest rates.
“Either way it is still highly unlikely that we get any movements in rates before the year is out, with the final policy decision due just one week after the General Election.”
On Tuesday, the ONS also revealed that wage growth had slowed to 3.6% in September from 3.8% the previous month. It remains significantly above the rate of inflation.
Emma-Lou Montgomery, associate director for personal investing at Fidelity International, said the inflation slowdown could be “welcome news” for consumers.
She added: “Inflation continues to languish below the Bank of England’s target of 2%, highlighting the impact of a year of uncertainty upon the UK economy.
“With a General Election and Brexit on the horizon, it’s difficult to foresee exactly when the political and economic environment might stabilise, and if nothing changes for the better the Bank of England will be under pressure to introduce an interest rate cut in early 2020.
“Should this happen, savers and investors need to think carefully about how to make their money work hardest, with the prospect of cash returns dwindling even further.”
The inflation announcement had little impact on the pound, fell 0.07% to 1.283 against the dollar.
Source: Shropshire Star