Plunging UK Inflation Spurs Rate Cut Bets, Offers Budget Relief for Reeves

• British inflation slowed sharply last month and key price gauges watched by the Bank of England also fell, bolstering bets on a November interest rate cut and helping finance minister Rachel Reeves before her first budget.
• Annual consumer price inflation eased to 1.7% in September from 2.2% in August, the lowest reading since April 2021. The easing inflation was driven down by lower airfares and petrol prices, the Office for National Statistics said. A Reuters poll of economists had pointed to a reading of 1.9%.
• Interest rate futures showed investors were putting a 90% chance on two BoE quarter-point rate cuts by the end of this year, up from a roughly 80% chance on Tuesday. "Today's release removes another potential obstacle to the Monetary Policy Committee voting for a 25bps rate cut at its November meeting," said Martin Swannell, chief economist adviser to the EY ITEM Club consultancy.
• A less inflationary outlook would slightly improve the economic and fiscal outlook for the budget as Reeves struggles to find the extra money to invest in public services and new infrastructure without spooking investors.
• September's inflation reading is also used as a base month for many social benefits. Wednesday's weaker-than-expected reading may disappoint recipients, although it could offer Reeves a little extra leeway for her budget plans.

(Source: Reuters)