The TUC are chivvying the Bank of England to cut interest rates next month, warning that it is falling behind other central banks.

TUC General Secretary Paul Nowak said:

“Working people will breathe a sigh of relief that the high inflation rates of recent years now appear to be behind us. But rising living standards rely on stronger growth.

“The last 14 years of Tory chaos and confusion have played havoc with our economy – and workers have paid the price.

“Households are still hurting, and families need a fresh start.

“With CPI now below target and GDP growth at just 1% for the last 12 months, this month’s budget is an urgently needed opportunity to unleash a new era of growth to help us repair and rebuild our economy and our country.

“The time is also right for the Bank of England to make another rate cut. Compared to other central banks, they are now off the pace on cutting interest rates.”

The TUC are right that Threadneedle Street (where the BoE is based) are looking tardy. Having raised rates to 16-year highs, it has only made one cut, in August, as many of its policymakers are concerned about UK inflation pressures being sticky.

The European Central Bank has already made two quarter-point cuts to its key interest rates this year.

And the US Federal Reserve started its loosening cycle with a bang last month, cutting its policy rate by half a percentage point.

A cut to UK interest rates next month is looking rather nailed on, after inflation tumbled below the Bank of England’s 2% target this morning.

The money markets are currently indicating that a quarter-point cut to Bank rate at the BoE’s next meeting in early November is a 91% chance. That’s up from just below 80% before the inflation report was released at 7am.

Such a cut would bring UK interest rates down from 5% to 4.75%.

Earlier this month, BoE governor Andrew Bailey told the Guardian that the Bank could become a “bit more aggressive” in cutting interest rates provided the news on inflation continued to be good.

Today’s drop in the CPI index to just 1.7%, from 2.2%, appears to meet the ‘good news’ yardstick.

Debapratim De, director of economic research at Deloitte, says:

“Price pressures continue to recede in the UK. Softening wage growth and services pricing point to further easing in the coming months.

“With inflation in retreat and UK growth slowing, the Bank of England will likely follow its August rate cut with another 25 basis point reduction in interest rates in November.”

Yesterday’s data showing a slowdown in wage growth could also encourage the Bank to hit the ‘cut button’ again.

Gora Suri, economist at PwC, agrees that the case for a November rate cut has strenthened:

Headline CPI inflation came in at 1.7% in September, dropping below the Bank of England’s target for the first time in three years, and adding to calls for another rate cut in November. This was mainly driven by downward contributions from motor fuels and air fares. Overall, this suggests we are very much at the end of the disinflationary process, which will be welcome news for policymakers and of course, consumers and businesses.

“Services inflation, the main area of concern, also fell considerably from 5.6% to 4.9%, and we are starting to see meaningful movement on wage growth, with annual growth in employee’s total earnings declining from 4.1% to 3.8%. All this is encouraging but upside risks to the headline rate remain, such as an increase in household energy prices and the potential for a spike in oil prices amid an escalation of conflict in the Middle East.

“The latest wage and inflation data is likely to further strengthen the case for a 25bp rate cut in November, especially considering the Bank’s increasingly dovish stance.”

Motor fuel prices fell by over 10% in September, compared with a year ago, today’s inflation report shows.

The ONS reports that the average price of petrol fell by 5.5p per litre between August and September 2024 to 136.8p per litre, down from 153.6p per litre in September 2023.

Diesel prices fell by 6.0p per litre in September to 141.8p per litre, down from 157.4p per litre in September 2023.

Here’s a breakdown of the various price changes in the UK’s inflation basket, which combined to push the CPI rate down to 1.7% in September:

• Food and non-alcoholic beverages: 1.9%, up from 1.3% in August

• Alcoholic beverages and tobacco: 4.9%, down from 5.8%

• Clothing and footwear: 0.8%, down from 1.6%

• Housing, water, electricity, gas and other fuels: -1.7%, down from -1.6%

• Furniture, household equipment and maintenance: -1%, up from -1.3%

• Health: 5.2%, down from 5.5%

• Transport: -2.2%, down from 1.3%

• Communication: 5.2%, up from 4.1%

• Recreation and culture: 3.8%, down from 4%

• Education: 4.4%, down from 4.5%

• Restaurants and hotels: 4.1%, down from 4.3%

• Miscellaneous goods and services: 3.3%, unchanged.

Darren Jones, chief secretary to the Treasury, has given a somewhat guarded welcome to the drop in inflation this morning.

Jones says:

“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.”

With inflation firmly below the Bank of England’s 2% target, policymakers could potentially cut interest rates at their final two meetings of 2024.

So says Lindsay James, investment strategist at Quilter Investors:

“For the first time in more than three years inflation is back below the Bank of England’s 2% target. With inflation falling below this level and the pace of wage growth slowing, the conditions appear ripe for another rate cut at the Bank of England’s next decision in early November, and maybe even the one after in December too.

This will please the government in the run up to the hotly anticipated budget, where we are being repeatedly told tough decisions are to be announced, so any sliver of good economic news will likely be pounced upon.

Encouragingly, core inflation has also fallen – but it’s still higher than the headline CPI index.

Core CPI (which strips out energy, food, alcohol and tobacco) rose by 3.2% in the 12 months to September 2024, down from 3.6% in August.

Goods prices fell at a faster rate – the CPI goods inflation index fell to -1.4% last month from -0.9% in August.

Services inflation slowed, from 5.6% to 4.9%.

The pound has dropped on the foreign exchange markets, after UK inflation dropped faster than expected in September.

Sterling has lost half a cent against the US dollar, to $1.302, down from $1.307 before the CPI data hit the newswires.

Traders will be calculating that September’s larger-than-expected drop in inflation makes it easier for the Bank of England to cut interest rates (which makes it less lucrative to hold sterling).

Cheaper petrol and flights helped push UK inflation down last month.

But there was a pick-up in food inflation.

ONS Chief Economist Grant Fitzner says:

“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.

“These were partially offset by increases for food and non-alcoholic drinks, the first time that food price inflation has strengthened since early last year.

“Meanwhile the cost of raw materials for businesses fell again, driven by lower crude oil prices.”

Newsflash: UK inflation has fallen below the country’s 2% target for the first time in three and a half years.

In a milestone moment in the cost of living squeeze, the consumer prices index (CPI) fell to 1.7% in September, new data from the Office for National Statistics shows, down from 2.2% in August.

This is the lowest reading for inflation since April 2021.

That should cheer the Bank of England, after it hiked interest rates through 2022 and 2023 to fight rising prices, before making its first cut in August. This may mean a second cut in November.

Investors had expected inflation to fall to 1.9%.

An important reminder: This drop in inflation doesn’t mean prices are falling, simply rising at a slower rate compared to a year ago. The level of prices for many items is still much higher than before the inflation spike of 2022.

Details to follow…

The cost of living squeeze is not abating for tenants, new data this morning shows.

Rightmove reports that average advertised rents have hit new record levels in the last quarter.

Its data shows that the average advertised rent for new properties outside of London hit a record of £1,344 per calendar month (pcm). That’s a 5.2% increase on a year ago.

Within the capital, rents have also reached a new record, with an average of £2,694 pcm – a 2.5% rise compared to last year.

A record proportion of former rental homes are currently on the market for sale, the property portal reports.

Rightmove’s Tim Bannister says:

“While we’re seeing some signs of improvement in the market’s chronic levels of demand and supply imbalance helped by a slight increase in the number of available rental properties, affordability remains a key challenge for renters as prices continue to hit new records. Tenant competition has eased slightly from last year, but the market is still far from balanced.

“We are seeing some landlords choosing to exit the market with potential tax changes and stricter EPC regulations as additional factors in landlords’ decision-making. With rental supply under strain, incentivizing landlords to invest in energy-efficient upgrades or offering tax relief could help maintain rental supply and, ultimately, ease affordability pressures for tenants.”

Deutsche Bank predict UK inflation will drop to 1.8% in September, which will be a “cyclical low”, they say.

The bad news for consumers is that Deutsche also believe “upward momentum” will likely gather pace, pushing inflation up again.

Sanjay Raja, their chief UK economist, told clients:

The recent run of energy deflation will likely come to an end shortly. Indeed, pump prices are likely to reverse course in October, while dual fuel bills will see a hefty 10% rise.

The upcoming Autumn Budget also raises risks to short-term inflation, with alcohol and tobacco duty increases potentially in the offing. A 10-15% net increase in VAT is also expected for private school fees come Jan-25. And lastly, an unwind of the fuel duty cut also looks likely in March/April.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Today could be an important day in the UK’s battle against rising prices.

Economics predict that UK inflation fell in September, to around 1.9% – crucially below the Bank of England’s 2% inflation target, for the first since since April 2021.

Such a fall would be a relief for the Bank of England, which has been trying to squeeze inflation out of the economy through higher interest rates, and could pave the way for a cut in borrowing costs in November.

In August, inflation was recorded at 2.2%, and many in the City expect the rate of price rises slowed last month – further away from the peak of 11.1% in October 2022.

Economists at Pantheon Macroeconomics have predicted a 1.9% reading for the month, driven by the sharp fall in motor fuel prices last month.

Pantheon added that falling air travel fares are also likely to contribute to a dip in inflation, although these could be partially offset by higher domestic hotel prices.

Investec analysts have suggested CPI could drop as low as 1.7%, largely driven by that “hefty” fall in fuel prices.

We get the data at 7am…

The agenda

• 7am BST: UK inflation report for September

• 9.30am BST: House price and rental costs data from the ONS

• Noon BST: US weekly mortgage approvals

• 2pm BST: IMF to publish a chapter of its World Economic Outlook