UK inflation drops to 1.7% - well below target for first time since 2021

UK inflation has eased to 1.7%, dipping well below the Bank of England target for the first time since 2021, according to the Office for National Statistics (ONS).

It's a drop on the 2.2% recorded in last month's Consumer Prices Index (CPI). Analysts had expected a fall, but only to 1.9%.

The Bank of England (BoE) has been trying to bring inflation down by keeping interest rates higher.

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It recently trimmed the base borrowing rate to 5% and today's inflation figure is expected to increase the likelihood of further cuts - welcome news for people with mortgages.

A lower inflation rate doesn't mean prices are falling - only that they are rising more slowly.

Inflation peaked at 11.1% in October 2022 after energy prices soared due to the start of the Ukraine war.

It fell to 2% in May and July this year, but then edged higher again.

The last time it was below the target - which is set by the government - was April 2021, when it was 1.5%.

The latest drop in inflation was mainly driven by falls in the cost of fuel and air fares, while inflation on food and non-alcoholic drinks increased for the first time since early last year.

However so-called "core inflation", which strips out volatile elements such as food and energy and gives a more reliable picture of what's going on in the economy, fell from 3.6% to 3.2%.

Mortgage holders can now look forward to what looks like an almost certain cut in interest rates from the Bank of England when it meets on 7 November.

A reduction from 5% to 4.75% was already viewed by financial experts as highly likely.

The BoE committee meets again in the week before Christmas and holds its first 2025 meeting on 6 February.

While good for borrowers, falling interest rates are often bad news for savers as banks usually peg back their rates to match the Bank of England.

Inflation is expected to increase again to some degree next month due to rising energy costs, with analysts at Pantheon Macroeconomics believing the latest figure of 1.7% is "the low point for CPI inflation".

"Oil price rises mean energy costs will rebound, while we expect the chancellor to boost duties in the October budget," they said.