UK inflation falls to near three-year low as energy prices are capped
UK inflation fell to its slowest rate in almost three years in October, official figures showed today, as growth was held back by the energy price cap.
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The consumer price index (CPI) – a gauge of how much prices have risen over the year – dropped to 1.5 per cent in October, down from 1.7 per cent in September, the Office for National Statistics (ONS) said.
The largest downward contribution “came from electricity, gas and other fuels as a result of changes to the energy price cap,” the ONS said.
Last month, energy watchdog Ofgem changed the energy price cap, which meant energy prices fell by 4.4 per cent between September and October.
An ONS spokesperson said the fall in utility prices due to a lowering of the energy price cap “was partially offset by rising clothing prices”.
Slowing inflation means that Brits’ wages go further. If the 3.6 per cent wage growth of the third quarter continued in October, average real wages would have risen by 2.1 per cent last month.
Yet the figures also mean inflation has dropped to well below the Bank of England’s target rate of two per cent.
Yet they are in line with BoE predictions, meaning “they are unlikely to move the dial on the outlook for interest rates,” said Ruth Gregory, senior UK economist at Capital Economics.
On Monday, the annual UK economic growth rate was shown to have fallen to its slowest in ten years in the third quarter.
Yesterday, ONS figures showed that the UK economy shed 58,000 jobs between July and September.
Gregory said that because of the energy price cap the fall in inflation “was not a reflection of a weakening in underlying inflationary pressures”.
Read more: UK avoids recession but annual growth slowest in a decade
Nonetheless, she said, “the figures do little to change our view that inflation will spend more time below two per cent than above it in 2020 and that if Brexit is delayed further, interest rates will be cut, in May 2020”.
(Image credit: Getty)