For some months now the Bank of England has been warning us that inflation needs to be stable before they unleash an expected series of rate cuts. However, today's inflation data for September, reveals a hugely unexpected drop in inflation to 1.7%, crashing through the B of E target level of 2% and a three year low.
This move will surely open the interest rate floodgates now with a ¼% cut already priced in for the November meeting, before today's Office of National Statistics announcement. While this may fuel some expectations to look for a giant ½% reduction, not seen for a long while, in the next Monetary Policy Committee meeting on November 7th, the smart money will probably go for a spreading of the love, which would be ¼% cut in November, then a late pre Xmas reduction of a further ¼%, in the last meeting of the year on December 19th. Good news for business, more bad news for state pensioners next year.
Flight prices, together with lower fuel prices at the pumps were the main reasons behind the drop but the spectre of higher energy prices is always just around the corner and will probably ensure any cuts will be a cautious ¼%.