UK inflation dips to near three-year low as utility price cap kicks in

LONDON, (Reuters) – British inflation fell to its lowest level in nearly three years in October, official data showed, giving households a bit of a spending boost before next month’s election.

Consumer prices rose at an annual rate of 1.5% compared with 1.7% in September as a regulator’s tariff cap pushed down electricity and gas prices for 15 million homes, the Office for National Statistics said on Wednesday.

It was the lowest reading of the consumer price index since November 2016.

A Reuters poll of economists had pointed to a 1.6% increase.

The Bank of England said last week that inflation would probably fall to 1.25% early next year due to caps on energy and water prices, but was likely to be back above its 2% target towards the end of its three-year forecast period.

The BoE has long said it plans to raise interest rates gradually, assuming Britain avoids a no-deal Brexit shock.

But two policymakers voted to cut rates last week, citing signs of a cooling in the labour market, and the Monetary Policy Committee as a whole sounded cautious about the outlook as the global economy slowed and Brexit remained unresolved.

“A fall in utility prices due to a lowering of the energy price cap helped ease inflation in October,” an ONS spokesperson said. “However, this was partially offset by rising clothing prices.”

Gas and electricity prices fell by 8.7% and 2.2% respectively in October from September.

Falling motor fuel prices also helped push down inflation.

A measure of core inflation, which excludes energy, fuel, alcohol and tobacco, was unchanged at 1.7%, as expected by economists in the Reuters poll.

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The ONS figures suggested no short-term pressure in the pipeline for consumer prices.

Manufacturers’ raw material and energy costs fell by 5.1% in annual terms last month, their biggest slide since April 2016.

The Reuters poll had pointed to a 4.9% fall.

Manufacturers raised the prices they charged by an annual 0.8%, the weakest increase since August 2016.

The ONS said house prices in September rose by an annual 1.3% across the United Kingdom, unchanged from August after touching a nearly seven-year low of 1.0% in June.

Prices in London alone fell for the 15th month in a row, down by 0.4% after falling by heavier 1.0% in August.

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