UK inflation falls to below 2% for first time since 2021

Bigger-than-expected decline was largely driven by lower air fares, falling petrol prices

Inflation in the UK has dropped to its lowest level in more than three years, providing a significant boost to Chancellor Rachel Reeves ahead of her first budget announcement on Oct. 30. New figures from the Office for National Statistics (ONS) on Wednesday showed the consumer prices index (CPI) fell sharply to 1.7% in September, down from 2.2% in August. The bigger-than-expected decline was largely driven by lower air fares and falling petrol prices. This is the first time since April 2021 that headline inflation has fallen below the Bank of England’s 2% target, delivering good news for Reeves as she prepares for a crucial tax and spending review in two weeks. The chancellor has emphasized that curbing inflation is central to Labour’s plan to protect household incomes, which is one of the three key priorities she has outlined for the upcoming budget. The other two objectives include repairing public services and boosting infrastructure investment to "fix the foundations of the economy." The unexpected drop in inflation has also intensified speculation that the Bank of England will cut interest rates. Economists suggest the central bank may reduce borrowing costs by a quarter of a percentage point in November, bringing rates down to 4.75%. The move would follow recent data showing a slowdown in the UK jobs market, which has added pressure on policymakers to ease monetary policy. UK inflation has been on a steady decline since hitting a 41-year high of 11.1% in October 2022, driven by soaring energy prices.