The decline between September and October surprised the market, with the pound sliding 0.8% against the US dollar on the news.
The Bank of England will tomorrow publish its quarterly Inflation Report, though economists said that today’s lower than expected CPI reading should help soothe fears about a near-term change in rates.
Capital Economics’ Martin Beck, UK economist, explained that although UK inflation would probably tick up again in November, it seemed the economy was “hitting a sweet spot”, with accelerating growth and a decline in the cost of goods and services.
Driving the drop in October’s data was a slip in the cost of airfare fares and a smaller rise in the cost of education.
Schroders’ Azad Zangana, European economist, also pointed to a drop in the “core” inflation rate, which he said had fallen to a three-year low once the impact of volatile components such as food, energy and alcohol had been stripped out.
He added: “We have been anticipating falls in the inflation rate for a while, although the larger than expected fall this month took us and the market by surprise. The lower than expected inflation rate should help allay fears that the Bank of England will be considering raising interest rates in the near future. While the unemployment rate is falling faster than the Bank had expected, inflation is also falling at a faster pace too."
