UK Inflation Drop Fuels Hope for November Rate Cut

British inflation saw a significant reduction in September, falling to 1.7% from August's 2.2%, primarily due to decreased airfares and petrol prices. This decrease strengthens the possibility of an interest rate cut in November, benefiting finance minister Rachel Reeves as she prepares her inaugural budget.

British inflation recorded a sharp decrease in September, dropping to 1.7% from 2.2% in August, according to the Office for National Statistics. This decline, driven by lower airfares and petrol prices, marks the lowest inflation rate since April 2021 and supports predictions for a November interest rate cut.

Evidenced by interest rate futures, investors now place a 90% probability on two quarter-point rate cuts by the end of the year, up from an 80% chance earlier in the week. Martin Swannell, chief economist adviser to the EY ITEM Club consultancy, suggests that the latest data eases an obstacle for the BoE's Monetary Policy Committee to vote for a rate cut next month.

Additionally, the lower inflation rate provides a favorable context for finance minister Rachel Reeves as she gears up for her first budget on October 30, offering a currently less inflationary economic outlook to support her spending plans.

(With inputs from agencies.)