A sharp fall in inflation means the Bank of England is almost certain to cut interest rates again in November economists reckon.
The fall in the inflation rate and the prospect of resulting cuts in borrowing costs will be welcomed by consumers and businesses.
However, retail leaders in Scotland complained that stores groups still face big increases in their business rates bills for next year.
These will rise in line with the Consumer Price inflation rate in the 12 months to September, which the Office for National Statistics announced fell to 1.7%, from 2.2% in the year to August.
The fall took the rate of inflation to the lowest level since April 2021, and well below the 2% targeted by the Bank of England.
It provided further evidence that the interest rate rises imposed by the bank to tackle the surge in prices that started amid the recovery from the pandemic have had the desired effect.
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After the bank cut its key interest rate for the first time in four years in August, to 5% from 5.25%, economists agreed the fall in inflation should give the bank the confidence to sanction further reductions in coming months.
The bank’s Monetary Policy Committee will announce the outcome of its next rate-setting meeting on November 7.
Luke Bartholomew, deputy chief economist at Scottish investment giant abrdn, said the update meant a quarter percentage point reduction in November was “effectively a done deal” and made the path to a consecutive cut in December much clearer.
Matt Swannell, chief economic adviser to the EY Item Club, said the release removed a potential obstacle to the MPC voting for a quarter point rate cut in November.
He added; “The key question now is whether the MPC will step up the pace of rate cuts at subsequent meetings, and this scenario would likely require further good news on pay growth and inflation.”
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Cuts in the official bank rate could pave the way for lenders to reduce the cost of mortgages and other forms of credit for consumers and businesses.
These would encourage shoppers to increase spending as the key Christmas period approaches.
The fall in inflation will provide a boost for the Labour Government as Chancellor Rachel Reeves prepares to announce her Budget next month.
However, the Scottish Retail Consortium said it would not spare members from big cost increases.
The consortium noted that UK Ministers traditionally use the September inflation number to set the level of business rates for the coming financial year.
“If Scottish Ministers follow suit – as they often do - then retailers in Scotland could potentially face an extra £13 million on their annual business rates bills from April 2025,” it said.
SRC director David Lonsdale said conditions in the sector remain challenging following a year in which sales have flatlined.
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The fall in CPI inflation was driven by reductions in the cost of airfares and motor fuels.
The annual rate of services inflation fell to 4.9% in the year to September, from 5.6% in the year to August. The fall could ease Bank of England concerns that services sector inflation remains “sticky”.
Goods prices fell by 1.4% annually, against 0.9% in the year to August.
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