With inflation firmly below the Bank of England’s 2% target, policymakers could potentially cut interest rates at their final two meetings of 2024.

So says Lindsay James, investment strategist at Quilter Investors:

“For the first time in more than three years inflation is back below the Bank of England’s 2% target. With inflation falling below this level and the pace of wage growth slowing, the conditions appear ripe for another rate cut at the Bank of England’s next decision in early November, and maybe even the one after in December too.

This will please the government in the run up to the hotly anticipated budget, where we are being repeatedly told tough decisions are to be announced, so any sliver of good economic news will likely be pounced upon.

Encouragingly, core inflation has also fallen – but it’s still higher than the headline CPI index.

Core CPI (which strips out energy, food, alcohol and tobacco) rose by 3.2% in the 12 months to September 2024, down from 3.6% in August.

Goods prices fell at a faster rate – the CPI goods inflation index fell to -1.4% last month from -0.9% in August.

Services inflation slowed, from 5.6% to 4.9%.

The pound has dropped on the foreign exchange markets, after UK inflation dropped faster than expected in September.

Sterling has lost half a cent against the US dollar, to $1.302, down from $1.307 before the CPI data hit the newswires.

Traders will be calculating that September’s larger-than-expected drop in inflation makes it easier for the Bank of England to cut interest rates (which makes it less lucrative to hold sterling).

Cheaper petrol and flights helped push UK inflation down last month.

But there was a pick-up in food inflation.

ONS Chief Economist Grant Fitzner says:

“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.”

Newsflash: UK inflation has fallen below the country’s 2% target for the first time in three and a half years.

In a milestone moment in the cost of living squeeze, the consumer prices index (CPI) fell to 1.7% in September, new data from the Office for National Statistics shows, down from 2.2% in August.

This is the lowest reading for inflation since April 2021.

That should cheer the Bank of England, after it hiked interest rates through 2022 and 2023 to fight rising prices, before making its first cut in August. This may mean a second cut in November.

Investors had expected inflation to fall to 1.9%.

An important reminder: This drop in inflation doesn’t mean prices are falling, simply rising at a slower rate compared to a year ago. The level of prices for many items is still much higher than before the inflation spike of 2022.

Details to follow…

The cost of living squeeze is not abating for tenants, new data this morning shows.

Rightmove reports that average advertised rents have hit new record levels in the last quarter.

Its data shows that the average advertised rent for new properties outside of London hit a record of £1,344 per calendar month (pcm). That’s a 5.2% increase on a year ago.

Within the capital, rents have also reached a new record, with an average of £2,694 pcm – a 2.5% rise compared to last year.

A record proportion of former rental homes are currently on the market for sale, the property portal reports.

Rightmove’s Tim Bannister says:

“While we’re seeing some signs of improvement in the market’s chronic levels of demand and supply imbalance helped by a slight increase in the number of available rental properties, affordability remains a key challenge for renters as prices continue to hit new records. Tenant competition has eased slightly from last year, but the market is still far from balanced.

“We are seeing some landlords choosing to exit the market with potential tax changes and stricter EPC regulations as additional factors in landlords’ decision-making. With rental supply under strain, incentivizing landlords to invest in energy-efficient upgrades or offering tax relief could help maintain rental supply and, ultimately, ease affordability pressures for tenants.”

Deutsche Bank predict UK inflation will drop to 1.8% in September, which will be a “cyclical low”, they say.

The bad news for consumers is that Deutsche also believe “upward momentum” will likely gather pace, pushing inflation up again.

Sanjay Raja, their chief UK economist, told clients:

The recent run of energy deflation will likely come to an end shortly. Indeed, pump prices are likely to reverse course in October, while dual fuel bills will see a hefty 10% rise.

The upcoming Autumn Budget also raises risks to short-term inflation, with alcohol and tobacco duty increases potentially in the offing. A 10-15% net increase in VAT is also expected for private school fees come Jan-25. And lastly, an unwind of the fuel duty cut also looks likely in March/April.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Today could be an important day in the UK’s battle against rising prices.

Economics predict that UK inflation fell in September, to around 1.9% – crucially below the Bank of England’s 2% inflation target, for the first since since April 2021.

Such a fall would be a relief for the Bank of England, which has been trying to squeeze inflation out of the economy through higher interest rates, and could pave the way for a cut in borrowing costs in November.

In August, inflation was recorded at 2.2%, and many in the City expect the rate of price rises slowed last month – further away from the peak of 11.1% in October 2022.

Economists at Pantheon Macroeconomics have predicted a 1.9% reading for the month, driven by the sharp fall in motor fuel prices last month.

Pantheon added that falling air travel fares are also likely to contribute to a dip in inflation, although these could be partially offset by higher domestic hotel prices.

Investec analysts have suggested CPI could drop as low as 1.7%, largely driven by that “hefty” fall in fuel prices.

We get the data at 7am…

The agenda

• 7am BST: UK inflation report for September

• 9.30am BST: House price and rental costs data from the ONS

• Noon BST: US weekly mortgage approvals

• 2pm BST: IMF to publish a chapter of its World Economic Outlook