Fall in petrol prices sees inflation drop by 0.5%

Hot air balloon

Inflation has fallen sharply by 0.5% to 2.2% in October, according to the Office for National Statistics.

The Consumer Price Index (CPI) was 2.7% in September and now, just a month later, it is only marginally ahead of the Bank of England's target of 2%.

The slowdown has largely been attributed to recent falls in the prices of petrol and diesel, as well as a smaller rise in tuition fees compared with last year.

Core inflation, which removes more volatile components of the index such as food, energy and alcohol, has fallen to its lowest level since September 2009 at 1.7%, down from 2.2% in the previous month.


Azad Zangana, European economist at Schroders, says: "We have been anticipating falls in the inflation rate for a while, although the larger than expected fall this month took us and the market by surprise."

Martin Beck, UK economist at Capital Economics, warns that inflation may "tick up a touch" in November off the back of recent increases in energy prices, but expects that "upward pressure could be short-lived". He adds that the lower rate should "help allay fears that the BoE will be considering raising interest rates in the near future".

Giles Andrews, chief executive of peer to peer lending service Zopa, says the lower rate means British savers will be harder pushed than ever to get a decent return on their savings.

Meanwhile, the pound fell slightly against the dollar and euro following the news after recent highs, to exchange rates of 1.58 and 1.19 respectively.

This article was written for our sister website Money Observer


More about