Surprise as UK inflation falls to 2.2%

Inflation has fallen to its lowest level in more than a year, official figures revealed as the Bank of England prepared to publish its latest quarterly outlook for the economy

The Bank of England

Inflation has fallen to its lowest level in more than a year, official figures revealed as the Bank of England prepared to publish its latest quarterly outlook for the economy.

The sharper-than-expected drop in the Consumer Prices Index rate from 2.7% in September to 2.2% in October was seen as easing pressure on the Bank to lift historically-low interest rates. Sterling fell on currency markets as a result.

The figure equals the level of inflation in September last year and takes it closer to reaching the Bank’s target level of 2% for the first time in four years. It was last lower, at 1.9%, in November 2009.

Prime Minister David Cameron hailed the fall as “encouraging news for hard-working people” in a Twitter message, though Labour pointed out that wages – rising at an annual rate of just 0.7%, according to latest figures – were still lagging behind.

Savers are still struggling to find accounts that beat the rise in the cost of living, according to price comparison website Moneyfacts.

Policymakers at the Bank of England’s monetary policy committee (MPC) were shown the figures last week before making their latest decision to hold interest rates. The MPC’s quarterly Inflation Report today will take the temperature of the economy amid speculation that it will upgrade forecasts for growth and jobs.

Lower inflation expectations will reduce the pressure on the Bank to cut interest rates although better prospects for the UK’s gross domestic product (GDP) and unemployment will have the opposite effect.

The Bank has pledged not to raise rates before the jobless rate falls to 7% and indicated this target is unlikely to be met until 2016.

Key factors in the latest fall in CPI were a petrol pump price war that saw 4.9p cut from a litre of fuel during October, and a smaller impact from university tuition fees, a year after they were introduced.

Recently-announced energy price hikes of around 9% have yet to take effect and are likely to have an upward impact on inflation later this year.

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