UK inflation falls below 2% target for first time in three years

Inflation dropped below the Bank of England target rate last month for the first time since April 2021, according to new figures.

The Office for National Statistics (ONS) said Consumer Prices Index (CPI) inflation fell to 1.7% in September, from 2.2% in August.

The slowdown was driven by a sharp slump in petrol prices and lower airfares.

Inflation was lower than expected, with analysts having predicted a reading of 1.9% for the month.

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.

The heavier-than-predicted fall in the inflation rate is expected to add pressure onto Bank of England rate-setters to cut interest rates, which had been hiked in recent years to bring inflation down to the 2% target.

Policymakers at the central bank will decide whether to reduce interest rates – which help set mortgage and borrowing rates – from their current 5% level at a meeting next month.

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.”

The ONS revealed that motor fuels and lubricant prices were significantly lower, dropping by 10.4% in September compared with the same month a year earlier.

Air travel costs also dragged down on the inflation rate, as lower air fares due to post-summer sales helped to drive a 5% fall in the category.

However, households witnessed the first acceleration in food and non-alcoholic drink inflation since March 2023 last month.

Food and drink inflation rose to 1.9% for the month from 1.3% in August, amid stronger price increases for milk, cheese, eggs and fruit.

Darren Jones, Chief Secretary to the Treasury, said: “It will be welcome news for millions of families that inflation is below 2%.

“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.”

The figures also showed that CPIH, a measure of inflation which includes owner-occupiers’ housing costs, rose by 2.6%, slowing from 3.1% in the previous month.

Meanwhile, the Retail Prices Index (RPI) rate of inflation slowed to 2.7% from 3.5% in the previous month.