LONDON – Inflation in the U.K. dropped sharply in October to its lowest level in two years, largely because last year’s steep rise in domestic energy bills following Russia's invasion of Ukraine dropped out of the annual comparison, official figures showed Wednesday.
The Office for National Statistics said consumer prices in the year to October were 4.6% higher than the year before, much lower than the 6.7% recorded in the previous month.
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The decline means Prime Minister Rishi Sunak's pledge to halve inflation this year has been met. Sunak made the pledge soon after becoming prime minister when inflation was more than 10%.
“I did that because it is, without a doubt, the best way to ease the cost of living and give families financial security,” he said. "Today, we have delivered on that pledge.”
Meeting the pledge — one of five set out by Sunak on taking office — will provide some comfort to his Conservative government, which is trailing the main opposition Labour Party in opinion polls ahead of a general election that has to take place by January 2025.
Labour's economic spokesperson Rachel Reeves said the government should not be “popping champagne corks” while people are still struggling with the cost of living.
“After 13 years of economic failure under the Conservatives, working people are worse off with higher mortgage bills, prices still rising in the shops and inflation twice as high as the Bank of England’s target,” she said.
Though the government has a role in containing inflation by, for example, keeping a lid on public sector pay awards, the main reason why inflation has fallen is due to actions by the Bank of England, which is tasked with meeting a target inflation rate of 2%.
Earlier this month, the bank kept its main interest rate unchanged at the 15-year high of 5.25% and indicated that borrowing costs will likely remain at these sort of elevated levels for a while.
The Bank of England, like other central banks, raised interest rates aggressively from near zero as it sought to counter price rises first stoked by supply chain issues during the coronavirus pandemic and then Russia’s full-scale invasion of Ukraine, which pushed up food and energy costs.
Higher interest rates — which cool the economy by making it more expensive to borrow, thereby bearing down on spending — have contributed to bringing down inflation worldwide.
Economists said the decline means that the bank's rate-setting Monetary Policy Committee is very unlikely to be increasing interest rates again in the near future. They also think that if inflation continues to fall towards 2%, then one or more of the nine-member panel may start mulling reductions in borrowing rates soon.
“This fall in inflation seals the deal on a December interest rate hold and may drive a three-way voting split among rate setters with a member voting for a rate cut as concerns over a flatlining economy grow," said Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales.