United Kingdom: Inflation declines to lowest level since October 2021 in October
Inflation dropped to 4.6% in October, below September’s 6.7% and undershooting market expectations. October’s result marked the lowest inflation rate since October 2021, but was still more than double the Bank of England’s 2.0% target. The reading was driven by moderating price pressures for transportation and food and non-alcoholic beverages.
Annual average inflation fell to 8.4% in October (September: 9.0%). Meanwhile, core inflation fell to 5.7% in October, from September’s 6.1%.
Finally, consumer prices rose 0.01% in October over the previous month, which was below September’s 0.50% increase. October’s result marked the weakest reading since July.
Given October’s lower-than-expected reading, and our forecasts for further falls in inflation heading into 2024, the Bank of England is unlikely to hike rates further from current levels.
On monetary policy implications, Nomura analysts said:
“For the BoE the important number now is services CPI inflation, which was 6.6% y-o-y, versus our view of 6.7%. Significantly this is 0.3pp below the BoE’s forecast of 6.9% made just a few weeks ago in its November Monetary Policy Report. These inflation data should give the BoE the breathing space it needs to keep interest rates on hold, but the UK is still far from the point where Bank Rate cuts can be considered.”