UK inflation slows sharply to 4.6%

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UK inflation slowed more sharply than expected to 4.6 per cent in October thanks to a retreat in energy prices, allowing prime minister Rishi Sunak to declare he has met his pledge to halve inflation by year end. 

The year-on-year rise in the consumer prices index was lower than the 4.8 per cent predicted by economists, and was well below the 6.7 per cent pace recorded for September. 

Sterling fell 0.22 per cent against the dollar to $1.2470 on Wednesday morning as the data added to the markets’ conviction that the Bank of England has finished raising interest rates. 

The numbers will come as a relief to Sunak, who said in January he wanted to see inflation halve from 10.7 per cent by the end of the year.

The sharp fall in headline inflation was driven in part by a reduction in energy regulator Ofgem’s price cap, reflecting lower wholesale gas prices. 

The core CPI rate, which excludes energy and food, rose by 5.7 per cent in the 12 months to October, down from 6.1 per cent in September. The rate of services inflation, which is a guide to domestic price pressures and is closely watched by the BoE, retreated from 6.9 per cent to 6.6 per cent.

The slowdown in the UK inflation rate mirrors easing price growth in other big economies and adds to evidence that central banks’ tightening cycle is over. 

Consumer price growth in the US fell to 3.2 per cent in October compared with 3.7 per cent the previous month, according to figures on Tuesday, while in the eurozone inflation fell to 2.9 per cent in October from 4.3 per cent in September. 

The more benign inflation readings will fuel discussion of when and where the first interest rate reductions are likely to come. In the UK, the BoE wants to see conclusive evidence that price growth and the labour market have cooled before it contemplates easing borrowing costs.

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