UK inflation falls to three-year low
UK inflation rose at its lowest pace in almost three years last month as the energy cap kept a lid on the price of electricity, gas and other fuels, according to official statistics.
The Office for National Statistics (ONS) said consumer prices rose 1.5% in October, against 1.7% in September. Energy regulator Ofgem lowered price caps last month.
The slower pace of price rises could boost household spending power as wages are rising faster than inflation. ONS data released showed that average earnings, excluding bonuses, increased by 3.6% in the three months to September.
The October inflation number was lower than the 1.6% forecast by economists, although the Bank of England has said inflation could slip to 1.25% early next year - well below its 2% target. A spokesperson for the ONS said: "A fall in utility prices due to a lowering of the energy price cap helped ease inflation in October. However, this was partially offset by rising clothing prices."
Prices of clothes and footwear rose by 1% on the previous month, the ONS said, with the most significant price moves being in ladies' formal trousers and branded trainers.
The Bank's policy makers expect the decline in inflation to continue in the first half of next year, due partly to the impact of the energy price cap and a likely reduction in water bills.
But they think those factors will fade and inflation will move back towards the target in the latter part of 2020. So the October data doesn't very much change the argument about the next move in interest rates. Two big uncertainties are perhaps more likely to move the dial: Brexit and the slowdown in the global economy.
Indeed the Bank has already signalled as much. Persistent Brexitrelated uncertainty and further weakness in global growth could mean it "might need to reinforce the expected recovery in UK GDP growth and inflation" - in other words cut interest rates. If those risks don't materialise a rise would be more likely. But no move is imminent.
Gas and electricity prices fell by 8.7% and 2.2% respectively in October from September. Ofgem said that around 15 million households on default deals or pre-payment meters will see lower bills this winter as a result of its latest cap on prices which took effect from October.
The cap means that households should typically pay £75 less a year. Howard Archer, chief economic advisor to the EY Item Club, said the inflation figures were "decent news for consumer purchasing power". The 3.6% rise in wages in the three months to September compares with an inflation rate of 1.8% over the period.
Jing Teow, economist at PwC, said: "The continued trend of falling inflation since late 2017, coupled with the steady rise in wages since 2018, has boosted household spending power, which has supported UK economic growth over the past two years."