Surprise as UK inflation falls to 2.2%

INFLATION in Britain has fallen to its lowest level in more than a year.

The sharper-than-expected drop in the Consumer Prices Index (CPI) rate from 2.7 per cent in September to 2.2 per cent in October is being seen as easing pressure on the Bank of England to lift historically-low interest rates.

Sterling fell on currency markets as a result on Tuesday.

The figure equals the level of inflation in September last year and takes it closer to reaching the Bank's target level of 2 per cent for the first time in four years. It was last lower, at 1.9 per cent, in November 2009.

Prime Minister David Cameron has hailed the fall as "encouraging news for hard-working people" in a Twitter message, though Labour pointed out that wages - rising at an annual rate of just 0.7 per cent, according to latest figures - were still lagging behind.

Savers are also still struggling to find accounts that beat the rise in the cost of living, according to price comparison website Moneyfacts.

Policymakers at the Bank of England's monetary policy committee (MPC) were shown the figures last week before making their latest decision to hold interest rates.

On Wednesday, the MPC's quarterly Inflation Report will take the temperature of the economy amid speculation that it will upgrade forecasts for growth and jobs.

Lower inflation expectations will reduce the pressure on the Bank to cut interest rates although better prospects for the UK's gross domestic product (GDP) and unemployment will have the opposite effect.

The Bank has pledged not to raise interest rates before the jobless rate falls to 7 per cent and indicated this target is unlikely to be met until the third quarter of 2016 at the earliest.

So the likelihood of this target being met sooner would add to anxiety that interest rates will be raised from their historic low of 0.5 per cent before that time.

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