Inflation drops below 2% target for first time in three years

A drop in inflation, driven by a fall in airfare and petrol prices, may pave the way for interest rates cuts, but could also spell bad news for millions of people on benefits, ITV News Political Correspondent Carl Dinnen explains

UK inflation has dropped below the 2% target for the first time in three years, the latest ONS figures show.

The rate of Consumer Price Inflation (CPI) dropped to 1.7% for September, which is the lowest point since April 2021 and a drop compared to the 2.2% figure for August.

It was lower than expected, with analysts having predicted a reading of 1.9% for the month. Lower airfares and a drop in petrol prices were the biggest drivers for the drop.

Inflation shows the rate at which the price of goods and services are increasing or decreasing, and is taken as a marker for health of the economy and living standards.

Subscribe free to our weekly newsletter for exclusive and original coverage from ITV News. Direct to your inbox every Friday morning.

The September figure is used by the government to decide a number of tax and spending changes for next year, and means UK state benefits will rise by 1.7% next year - which is less than many expected.

It also confirms that state pensions will increase by 4.1% next April, due to the triple-lock policy.

UK inflation peaked at 11.1% in October 2022 after energy prices soared due to the Russian invasion of Ukraine, with the central bank hiking interest rates in order to bring inflation under control.

Inflation dropped to the target rate set by the Bank of England and the government, of 2%, in May and July, but since then have ticked slightly higher.

Wednesday's figures will be good news for the central bank, as it hiked interest rates throughout 2022 and 2023 in an attempt to control rapidly rising prices.

The Bank of England will now be under pressure to further cut the base rate at its next meeting in November, after it lowered interest rates for the first time in four years in August.

Chief Secretary to the Treasury Darren Jones welcomed the news, but said "there's more work to be done to protect working people and bring stability back to the economy."

There's also concern from poverty charities that the fall in inflation is "badly timed" for the UK's poorest households.

Some projections suggest inflation will go up again over the coming months as energy prices increase, which will make things even harder for benefits claimants as the cost of living increases.

The Joseph Rowntree Foundation said a 1.7% increase would mean the basic rate of universal credit would rise by around £1.50 a week from its current level of £90.55, while the basic rate for couples would go up by around £2.50 a week from the current level of £145.13 a week.

The Resolution Foundation economic think tank said the changes will mean a typical low-income family with two children would see its annual universal credit award rise by £253 next April - but that's compared to a projected £327 rise if the October figure is used.

The Joseph Rowntree Foundation’s Iain Porter said: “The consequence of today’s rate of inflation is that April’s uprating will be worth just a few pounds to most people.

“The reality is millions of families can’t afford enough food this week, or to turn the heating on as the nights get colder – emphasised by the fact that food price inflation has risen for the first time since early last year.

“The basic rate of universal credit is so insufficient it fails to protect families from hardship, and this increase will barely touch the sides.”

He called for urgent action in the Budget on October 30 to support hard-pressed families, but Chancellor Rachel Reeves has warned her financial statement will include “difficult decisions on spending, welfare, and tax”.

Want a quick and expert briefing on the biggest news stories? Listen to our latest podcasts to find out What You Need To Know…