UK core inflation drops to a four-year low in October

The inflation rate fell to 2.2 per cent in the year to October, down from 2.7 per cent last month - its lowest level since 2009. Consensus had been that it would fall to 2.5 per cent.

UK core inflation fell to 1.7 per cent year-on-year in October. The other main consumer price indices moved in a similar direction. CPIH two per cent in the year to October 2013 down form 2.5 per cent. RPIJ grew was 1.9 per cent down from 2.5 per cent.

The decline was driven by motor fuels, air fares, second-hand cars and university tuition.

Commenting on the figures, Martin Beck UK economist, Capital Economics said:

October's inflation data suggests that the UK economy is hitting a sweet spot of accelerating growth and falling inflation.

Looking forward, inflation may tick up a touch in November as some of the recent announcements of hefty increases in energy prices start to take effect. But if rumours of Government action to reduce energy prices in December's Autumn Statement are correct, this upward pressure could be short-lived.

Despite the fall in CPI, the squeeze on consumers' purchasing power is likely to remain considerable.

Howard Archer, IHS Global Insight commented:

While earnings growth seems likely to pick up gradually over the coming months, inflation may well hover close to 2.5 per cent for a while, so it could well take to mid-2014 at least before earnings growth finally overtakes consumer price inflation.

Meanwhile, October’s marked dip in inflation likely to have only limited impact on the market’s views on when the Bank of England will start to raise interest rates. The market is primarily focused on the strength of the economy and how quickly the unemployment rate will come down.