UK CPI fell within the target range in September, according to data released by the UK Office for National Statistics on October 16. The CPI increased by 1.7% year-over-year in September, down from 2.2% in the previous month and below the market expectation of 1.9%, marking the lowest level since April 2021.

Core CPI, which excludes energy, food, and tobacco, rose by 3.2% year-over-year, a decrease of 0.4 percentage points from the previous month.

The main factor behind the CPI decline was the transportation sector, where prices dropped by 2.2% year-over-year, a 3.5 percentage point reduction from the previous month, contributing -0.3 percentage points to overall CPI growth. This was primarily due to lower airfares and a decline in crude oil prices.

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Moreover, The Bank of England’s closely watched services prices rose by 4.9% year-over-year, down 0.7 percentage points from the previous month, reflecting the continued easing of wage pressures. The latest data shows that regular pay growth in August was 4.9% year-over-year, a decline of 0.2 percentage points from the previous period, marking the lowest level since June 2022.

Earlier, in its August Monetary Policy Report, the Bank of England predicted that as wage pressures ease, services inflation would gradually decline to around 5.3% in 2024.

According to Reuters report, the latest CPI data has further fueled market expectations for a rate cut by the Bank of England. The probability of a two-rate cut by the end of the year has risen from 80% to 90%, and the British pound fell by approximately 0.8 cents against the U.S. dollar on October 16.

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