Inflation across the United Kingdom (U.K.) fell to 1.7% in September, its lowest level in three years and below the Bank of England’s 2% annualized target.
News that inflation in the U.K. has dropped below the key 2% threshold comes a day after Canada reported that its inflation rate declined to an annualized 1.6% in September.
In the U.K., the Office for National Statistics said that core inflation, which excludes volatile energy, food, alcohol and tobacco prices, came in at 3.2% for September.
Core inflation was down from 3.6% in August and below the 3.4% expected among economists.
Total inflation, often called headline inflation, has now fallen from a peak of 11.1% in October 2022 to September’s 1.7% reading. It’s the first-time inflation has been below 2% in the U.K. since April 2021.
Price increases in the services sector, which dominates the U.K. economy, declined to 4.9% in September from 5.6% in August, hitting its lowest level since May 2022.
Futures markets currently expect the Bank of England to lower interest rates by 25-basis points at each of its two remaining policy meetings this year.
Two additional 25-basis point rate cuts this year would take the Bank of England’s key interest rate down to 4.50%.