Inflation falls to 1.7% the lowest rate in three years ahead of first Labour Budget

16 October 2024, 07:04 | Updated: 16 October 2024, 08:43

By EJ Ward

For the first time in more than three years, inflation has dipped below the 2% target, with the latest figures showing a 1.7% rate for September.

This marks the lowest inflation rate since April 2021, when it stood at 1.5%, and a decline from August's figure of 2.2%.

While a fall was anticipated, analysts had expected it to land at 1.9%.

However, inflation is likely to rise again when October's figures are released, largely due to increasing energy costs.

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, which is why we are focused on bringing back growth and restoring economic stability to deliver on the promise of change."

Measured by the Consumer Prices Index (CPI), the UK inflation rate is calculated using the change in price of a set range of items in the average household's shopping basket.

September's figure is used as a guideline for key benefits, such as carer's allowance and Universal Credit, ahead of amendments that come into force in April.

According to the Office for National Statistics, petrol and diesel prices were among the items showing the largest inflationary drop, falling by 10.4% in September compared with the same month a year earlier.

Air travel was another cost reducing the inflation rate, as lower air fares due to post-summer sales.

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Experts at Pantheon Macroeconomics noted: "Looking ahead, we believe September will be the low point for CPI inflation.

With oil prices on the rise, energy costs are set to rebound, and we expect the chancellor to raise duties in the October budget.

"CPI services inflation may continue to slow gradually, but we still forecast CPI inflation to reach 2.8% in December and 3% by next September."

Though this outlook may seem concerning, it’s worth remembering that inflation peaked at a staggering 11.1% in October 2022, at the height of the cost-of-living crisis.

This reduction to more typical levels could pave the way for interest rate cuts, with the next decision due on 7 November. Analysts are predicting a cut from the current 5% to 4.75%.

However, despite the drop, warnings were issued that September’s declining inflation rate could be reversed following a rise in Ofgem’s energy price cap which kicked in at the start of the month.