Inflation falls to lowest rate in over three years

UK inflation fell to 1.7% in September, down from 2.2% in August, marking the lowest rate in over three years.This means inflation is now below the Bank of England’s 2% target, meaning the bank may face pressure to cut interest rates next month.

According to the Office for National Statistics, the fall in inflation was largely driven by lower airfares and petrol prices, but partially offset by a rise in prices for food and non-alcoholic drinks, with food prices rising for the first time since early last year. 

Overpall prices in the transport division fell by 2.4% in the year to September 2024, compared with a rise of 1.2% in the year to August. This is the largest annual price fall in transport since October 2015.

Food and non-alcoholic beverage prices rose by 1.8% however, up from 1.3% in August 2024. This is the first time since March 2023 that the annual rate of inflation for this division has risen. It is still down from the high of 19.2% in March 2023, the highest annual rate seen for over 45 years.

Elsewhere, prices in clothing and footwear rose by 0.8% in the year to September 2024, compared with a rise of 1.6% last month. This was due to downward effects from women’s and men’s clothing, partly counteracted by a positive contribution from children’s footwear. 

Commenting on today’s inflation figures, 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 driver for this month’s fall.  

“These 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 the cost of raw materials for businesses fell again, driven by lower crude oil prices.” 

The British Retail Consortium warned that September’s inflation figures will determine next April’s increase to business rates, meaning the industry faces paying an extra £140m.

Kris Hamer, director of Insight of the BRC, said: “The September CPI will determine next April’s increase to business rates, meaning the industry faces paying an extra £140m. For too long, the gradual increases to business rates have been contributing to the decline of our high streets and town centres, damaging investment and preventing the creation of new shops and jobs. 

“This effect could be compounded if other business taxes are increased at the Budget. The Chancellor should introduce a Retail Rates Corrector – a 20% downward adjustment in business rates paid on all retail premises – to redress the imbalance that sees retailers paying a higher proportion of their profits in taxes of almost any industry.”

He added that with Ofgem’s lifting of the energy price cap at the start of the month, October’s figures will reveal an inflation rate closer to the 3% mark, “dampening real wage growth over the all-important Golden Quarter”.