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Investing.com - The U.K. annual inflation rate fell in October, although by slightly less than expected, increasing the likelihood that the Bank of England will cut interest rates at its final policy meeting next month.
Annual consumer price inflation rose 3.6% in October, a drop from 3.8% the prior month, the lowest level it has been since May. A fall to 3.5% had been widely expected.
This is still considerably higher than the Bank of England's 2.0% medium-term target, which it considers a stable pace of increase, but is showing signs of stabilization.
The monthly figure showed a gain of 0.4% from the prior month’s flat reading, while core CPI, which excludes volatile energy and food prices,rose 0.3% on a monthly basis, coming in at 3.4% annually, a drop from the 3.5% growth seen in September.
Producer input prices, which gradually feed into consumer inflation, actually fell 0.3% in October, on a monthly basis, resulting in an annual rise of just 0.5%.
The stubborn nature of inflation has made the Bank of England hesitant to cut rates, with the Monetary Policy Committee voting 5-4 to leave rates unchanged earlier this month. Governor Andrew Bailey casted the deciding vote, and decided he wanted to wait for evidence of declining inflation before committing to a cut.
Next month’s meeting will follow British Finance Minister Rachel Reeves’ Autumn Budget on November 26, where she is expected to raise taxation, although probably not through income tax increases, to fund a shortfall in the government finances that could reach up to £40 billion.
Reeves also indicated that she would provide help to ease the cost of living burden in next week's Budget - for example, relief on energy bills - and that too could influence the Bank's decision.
The majority of economists polled by Reuters earlier this month now expect the Bank of England to cut interest rates in December and again early next year as inflation cools over coming months and as growth remains meager.