Inflation slowed for the first time in more than a year last month, according to figures that leave the door open for a cut in interest rates next year.
The annual rate of consumer price inflation, which the Bank of England targets, slowed to 2.3 per cent from a record 2.5 per cent in the previous month, data showed. The main reason was a 1.3p drop in the average cost of a litre of petrol on the UK's forecourts, compared with a rise of 1.8p a litre in October last year.
It was still the fourth month in a row that CPI had exceeded the Bank's 2 per cent target, but analysts said the fall showed that energy costs were no longer pushing up inflation as fast as they were.
John Butler, at HSBC, said: "The Bank of England, like other central banks, are clearly on inflation alert but so far so good, as the producer and consumer price data should help to ease those fears. At the beginning of next year the focus will shift away from inflation back on to the expected disappointment in growth and that should allow interest rates to fall further."
Its Monetary Policy Committee cut rates in August to 4.5 per cent, but by the narrowest of margins, leaving the Bank Governor Mervyn King outvoted and analysts split over whether the central bank will trim rates. Mr King will publish the Bank's latest economic forecasts this morning which will give markets a clearer steer on how concerned policymakers are about inflation further out.
While inflation is starting from a higher point than in August's quarterly report, yesterday's data - which was available to the MPC at last week's rate meeting - should encourage the more dovish MPC members that consumer price inflation was on a downward path. Meanwhile, a survey showed that businesses were increasingly gloomy about their prospects as slowing economic growth and rising costs - which they are not passing on to customers - hit profit margins.
A survey by the CBI and the Regional Development Agencies, taking in all sectors of the economy, shows today that employers are less optimistic about the general business situation than they were in the spring.Reuse content