Inflation in the U.K. unexpectedly held steady in the year to September as higher prices at the pump were offset by lower food costs, official figures showed Wednesday in a development that has bolstered hopes of another interest rate reduction next month.
The Office for National Statistics said consumer prices rose by 3.8% on an annual basis, unchanged from the levels seen in the previous two months.
Most economists had expected the rate to rise to 4%, which would have been double the Bank of England's target.
Economists said the flat reading will bolster hopes at the central bank that inflation has peaked and will back down towards its target over the coming months.
“Price pressures should begin to slowly ease in the coming months, but we are unlikely to see a more substantial downshift in inflation until the first half of next year," said Martin Sartorius, principal economist at the Confederation of British Industry.
He added that the “downside surprise” in inflation raises the possibility that the central bank may cut interest rates again at its next policy meeting on Nov. 6. Last month, it held its main interest rate at 4% as U.K. inflation concerns weighed on policymakers.
The inflation figure will also be welcomed by Treasury chief Rachel Reeves as she prepares to deliver a crucial budget statement on Nov. 26, which is expected to see taxes rise again. September’s inflation rate is used to link welfare benefits for the upcoming year, so the cost of funding that will be lower than anticipated.
