Wet Piccadilly Circus on a rainy morning in the West End, on September 26, 2024, in London, England.
Richard Baker | In Figure | Getty Images
LONDON – Inflation in Britain fell sharply to 1.7% in September, the Office for National Statistics said on Wednesday.
Economists polled by Reuters had expected the base rate to stay above 1.9% for the month, the first drop below the Bank of England’s 2% target since April 2021.
Inflation has hovered around that level for the past four months and was at 2.2% in August.
Core inflation, which excludes energy, food, alcohol and tobacco, was at 3.2% in the month, down from 3.6% in August and below the 3.4% forecast in the poll. Reuters probe.
Price growth in the services sector, the dominant sector in the UK economy, fell significantly to 4.9% last month from 5.6% in August, now reaching its lowest level since August. May 2022.
Core and services inflation are key points to watch for Bank of England policymakers as they consider whether to cut interest rates again at their November meeting. .
Money market pricing for a 25 basis point rate cut in November rose from 80% to 91% after the latest inflation report, with the next cut in December almost fully priced in. enough. lower wage growth reported by the ONS this week backed the case for a rate cut.
Two more quarter-point rate cuts this year would take the BOE’s benchmark rate to 4.5%, after the central bank began cutting rates in August and then held September.
A fall at British pound Wednesday’s announcement reflected more dovish expectations for the BOE, with sterling down 0.6% against the US dollar at $1.299, falling below $1.30 for the first time since from September 11. The British currency fell 0.5% against the euro.
Meanwhile, yields on British government bonds, known as bullion, have fallen across the board. Two-year gold-plated output decreased by 9 basis points when 10 year gold plating productivity reduced by 7 basis points.
British Pound vs US Dollar.
Suren Thiru, director of economics at the Institute of Chartered Accountants in England and Wales, said: “These figures provide reassurance that the UK has moved to a more moderate inflation environment, supported because of lower fuel prices.” ” in services inflation suggests “underlying price pressures are becoming less binding.”
However, Thiru added that UK inflation could reverse October’s decline as the regulator’s energy price cap rises, while the BOE will wait to assess the Labor government’s move. Older brother. The debut budget is deeply awaited at the end of the month to know any potential inflationary impacts before the course.
Capital Economics’ UK chief economist Paul Dales was similarly cautious, pointing out that much of the unexpected weakness in core and services inflation was due to sharp falls in airfares. As a result, the BOE is more likely to maintain the 25 basis point cut at every other meeting, Dales said, even as the likelihood of two more cuts this year has increased.
“We still think interest rates will eventually fall to 3.00%, which is lower than the 3.50-3.75% offered in the market,” he said.
However, Deutsche Bank’s UK Chief Economist Sanjay Raja said the inflation figures would be “music to the people”. [Monetary Policy Committee’s] ear” and may cause them to consider lifting policy restrictions more quickly, including successive interest rate cuts.
Raja also noted the risks posed by the budget, which he said “will likely expand despite the scale of fiscal consolidation coming on October 30.”
