UK inflation falls below Bank of England target for first time since 2021, according to new ONS figures

Consumer Prices Index (CPI) inflation fell to 1.7% in September, down from 2.2% in August, driven by a sharp decline in petrol prices and lower airfares.

The drop in inflation was lower than analysts' expectations, who had predicted a rate of 1.9%. This decrease will impact government decisions on tax and spending changes for next year, with state benefits set to rise by 1.7% and state pensions likely to increase by 4.1% in April under the triple-lock policy.

Grant Fitzner, the ONS chief economist, said: "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."

Motor fuel prices dropped by 10.4% in September compared to the same period last year, while airfares fell by 5% due to post-summer sales. However, food and drink inflation rose to 1.9% in September from 1.3% in August, with prices for milk, cheese, eggs, and fruit seeing significant increases.

The sharp decline in inflation is expected to increase pressure on the Bank of England’s Monetary Policy Committee (MPC) to cut interest rates, which are currently set at 5%. The MPC will meet next month to decide whether to reduce rates, with economists suggesting a 0.25% cut is likely. The pound also fell by 0.7% against the US dollar, hitting its lowest level in two months.

Darren Jones, Chief Secretary to the Treasury said: "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."

Economists warn that inflation may rebound in October due to Ofgem’s energy price cap increase, but overall, the slower momentum behind inflation and pay growth raises the likelihood of interest rate cuts in the coming months.