UK inflation fall sparks interest rate speculation

The UK's inflation rate fell to its lowest in three years last month, mainly thanks to a decline in energy prices, according to data from the Office for National Statistics (ONS).

From a peak of 3.1 per cent in 2017, the October rate was down to 1.5 per cent, sparking speculation that the Bank of England could reduce interest rates from the current 0.75 per cent base in the new year.The ONS said that, in addition to the introduction of energy price caps, the consumer price index had fallen because of heavy discounting of furniture and price cuts across the recreation and culture sectors. These reductions more than offset increases to clothing and footwear.Economists were divided over whether or not the latest data would encourage the Bank of England, which has a target of two per cent inflation, to cut interest rates. Last week, two of the bank's nine-member Monetary Policy Committee voted for such a reduction.Ruth Gregory, a senior UK economist at Capital Economics, said prices had further to fall over the coming months, adding: “Overall, the figures do little to change our view that inflation will spend more time below two per cent than above it in 2020 and that if Brexit is delayed further, interest rates will be cut in May 2020."Emma-Lou Montgomery, associate director for personal investing at Fidelity International, agreed there could be pressure to a cut in rates early in 2020, but Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the inflation measure would probably head back towards two per cent later in 2020 and doubted rates would be cut soon.Rupert Thompson, head of research at investment management company Kingswood, commented: "These numbers follow hard on the heels of the downbeat economic data released earlier in the week, which showed a slowdown in underlying wage growth, a fall in employment and the weakest GDP growth since 2010. "Altogether, this crop of data suggests any move by the Bank of England over coming months is more likely to be a rate cut than a hike. Even so, the most likely outcome remains that the Bank remains on hold – particularly now there are signs the worst of the global economic slowdown is behind us.” Andy Scott, chief executive of REL Capital, said the latest drop in inflation should "even bring a smile" to the face of Mark Carney, governor of the Bank of England.He added: "The expectation was that consumer price inflation would fall from its recent trend of 1.7 per cent - a pretty low number all in all - to 1.6 per cent. The fact that the actual outturn is just 1.5 per cent further reinforces the prospect of a continuation of the current Bank rate of 0.75 per cent, or perhaps even spells the prospect of a cut in the New Year."A further drop in the cost of borrowing would be fantastic news for homeowners with a mortgage and, for the beleaguered business community, it would come as welcome defibrillation against a political climate that seems to have largely ignored the importance of the business community whilst it bickers about Brexit.”A separate ONS report on Wednesday showed that UK house price inflation remained subdued, with a 1.3 per cent rise nationwide in the year to September.In London, prices continued to drop with the average property price now standing at £474,601, compared to £476,545 in September 2018.

Read more news and views, from David Sapsted.

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