UK inflation slows sharply to 4.6%

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In October, inflation in the UK decreased more than anticipated, with a drop in energy prices being the major factor. This has enabled Prime Minister Rishi Sunak to announce that he has successfully achieved his promise of halving the rate of price increases by the end of this year.

The increase in the consumer prices index from one year to the next was not as high as what experts had anticipated, coming in at less than 4.8 per cent. This is also lower than the increase of 6.7 per cent that was seen in September.

The recent data released by the Office for National Statistics indicates that the rate of inflation has dropped to its lowest level since 2021.

The value of the British pound decreased by 0.3% compared to the US dollar, reaching $1.246, after the ONS (Office for National Statistics) released their latest data. This information strengthened the belief within financial markets that the Bank of England is unlikely to raise interest rates any further. Meanwhile, the FTSE 100 index rose by 1.1%.

Sunak will be relieved by the figures that will be released on Wednesday. In January, he had expressed his desire to witness a 50% drop in inflation from 10.7% by the conclusion of 2023. Sunak further added that the attainment of his objective has necessitated difficult choices and economic restraint.

Even though some financial experts foresaw an easy accomplishment of Sunak's objective due to the significant drop in energy prices, he emphasized the importance of enforcing stringent regulations on expenditure and salaries within the public sector this year.

The decrease in headline inflation has sparked discussion within the Treasury about potentially reducing benefits in the upcoming Autumn Statement to ensure they remain relevant. The idea is currently being debated within the department, according to sources.

Typically, benefits for people who are of working age are adjusted in April based on September's official inflation rate. This year, the inflation rate was 6.7 percent. By adjusting the benefits by 4.6 percent, it is estimated that approximately £2 billion could be saved each year.

Still, numerous Conservative Members of Parliament are against implementing such strict measures. According to the Director of the Institute for Fiscal Studies, Paul Johnson, the decision would have significant consequences and negatively impact individuals in lower socioeconomic brackets.

According to sources within the government, Jeremy Hunt, who is in charge of the country's finances, might continue with the 6.7% reference figure. This could be attributed to the fact that the latest predictions for the country's finances are more optimistic.

Although many, including the Bank of England, anticipated a decrease in inflation, it still creates a beneficial setting for the government's presentation of the Autumn Statement in the upcoming week.

Although it is good to hear that prices are not increasing rapidly anymore, numerous individuals are still facing difficulties. That is why we must persist in our efforts to bring inflation down to 2 percent.

The significant decline in the overall increase of prices was influenced partly by a decrease in Ofgem's price limit for energy, which was caused by the drop in wholesale gas prices. Additionally, the slowdown of inflation concerning food prices also contributed to the decrease of the overall number.

The basic CPI rate, which doesn't count energy and food, increased by 5.7% in the 12 months until October, a decrease from the previous month's 6.1%. Services inflation rate, an important indicator for the BoE to determine domestic pricing pressure, reduced more than anticipated from 6.9% to 6.6%.

Although inflation has decreased, prices are still increasing at a rate that is more than twice the central bank's goal of 2%. As reported by the ONS, the average price level in the UK last month was still over 16% higher compared to October of last year.

The less alarming inflation reports will lead to talks about when the initial decrease in interest rates will occur. In the United Kingdom, the Bank of England requires solid proof that both the increase of prices and job market have calmed down before considering making borrowing expenses easier.

According to Hugh Gimber, who is a global market strategist at JPMorgan Asset Management, the information provided by ONS is indicating that interest rates are now at a point where they can have an impact on slowing down the economy. However, Gimber highlights that we would need to have a lot more evidence before we could start talking about decreasing the interest rates.

The market for swaps, which shows estimates of the future BoE rates, is currently suggesting that the first interest rate decrease will take place in June of next year. Additionally, the market is predicting that there will be three reductions of 0.25 percentage points in 2024.

The reduction in the inflation rate of the United Kingdom follows a decrease in the rate of price increase in other major economies. This gives more proof that central banks are no longer raising interest rates.

The increase in prices for goods and services that consumers face in the US decreased slightly to 3.2% during October. This is in contrast to the previous month's figure of 3.7%. In the Eurozone, inflation decreased even more sharply with a drop from 4.3% in September to 2.9% in October. These statistics were released on Tuesday.

Rachel Reeves, the shadow chancellor, expressed that the drop in inflation will bring comfort to those families facing difficulties with the expenses of daily life. However, she went on to state that the current ruling party has caused harm to the working class by increasing mortgage payments and allowing prices in stores to continue to rise.