UK inflation drops below 2% target for first time since 2021

The rate of in the UK has fallen below the Government-set target of two percent for the first time since 2021, the Office of National Statistics (ONS) has said.

According to new figures, the Consumer Price Index (CPI) rose by 1.7 percent in the 12 months to September 2024, down from 2.2 percent in August.

Commenting on the data, ONS Chief Economist Grant Fitzner said: "Inflation eased in September to its lowest annual rate in over three years. Lower airfares and petrol prices were the biggest drivers for this month's fall.

"They were partially offset by increases for food and non-alcoholic drinks, the first time that food price inflation has strengthened since early last year."

Meanwhile, Mr Fitzner continued: "The cost of raw materials for businesses fell again, driven by lower crude oil prices."

Overall prices in the transport division fell by 2.4 percent in the year to September 2024, compared with a rise of 1.2 percent in the year to August. According to ONS, this is the largest annual price fall since October 2015, when the rate was minus 2.7 percent.

Food and non-alcoholic beverage prices rose by 1.8 percent in the year to September, up from 1.3 percent in August 2024. This marks the first increase in annual inflation for this sector since March 2023. While the current rate is 1.8 percent, it remains significantly lower than the recent peak of 19.2 percent in March 2023, the highest in over 45 years.

Darren Jones, Chief Secretary to the Treasury, commented: "It will be welcome news for millions of families that inflation is below two percent.

"However, there is still more to do to protect working people, which is why we are focused on bringing back growth and restoring economic stability to deliver on the promise of change."

The Government uses September figures to decide a number of tax and spending changes for next year which means UK state benefits are likely to rise by 1.7 percent next year.

It also confirms that state pensions will increase by 4.1 percent next April, due to the triple-lock policy.

Core inflation, which reflects the change in prices of goods and services - excluding those from the food and energy sectors - rose by 3.2 percent in the 12 months to September 2024, down from 3.6 percent in August.

The core inflation rate is the metric used to determine the impact of rising prices on consumer income. The Bank of England also takes this number - along with the CPI - into consideration when deciding whether to adjust .

Analysts have said today's data be setting the stage for a November Base Rate cut. Suren Thiru, economics director at ICAEW, said: "These figures provide reassurance that the UK has moved into a more moderate inflation environment, aided by lower fuel prices."

However, he noted: "September's decline could be reversed this month, given the rise in energy bills following the increase in Ofgem's energy price cap, which is likely to pull the headline rate back above the Bank of England's two percent target."

He continued: "The notable drop in services inflation suggests that underlying price pressures are becoming less sticky. The squeeze from slower economic activity and weaker wage growth should help keep it on a downward trajectory.

"Though the stars are aligning for a November rate cut, the upcoming Budget is the final hurdle as rate setters will want to assess the inflationary impact of any measures announced before loosening policy again."

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