Unexpectedly, UK inflation dropped to 1.7% in the year ending in September, the lowest level in three and a half years.

According to official estimates, the unexpected downturn was mostly caused by lower gasoline and travel prices.

As a result, inflation—the rate at which prices increase over time—is now below the Bank of England's 2% objective, opening the door for more interest rate cuts the following month.

September's number is often used to determine how much various benefits will increase in April of the following year.

All of the primary disability payments, including the personal independence payment, disability living allowance, attendance allowance, and carer's allowance, are legally increased by at least the rate of inflation in September.

However, a 1.7% benefit increase would fall short of the 4.1% state pension increase anticipated in April, which is based on the so-called triple lock.

In September, fuel and diesel prices were 10.4% lower than they were a year earlier, according to the Office for National Statistics (ONS).

The price of long-haul, local, and European airline tickets also contributed to the decline in inflation. After the summer rush, fares usually decline, but this time they dropped more than usual.

The unexpected decline in the UK's inflation rate occurs ahead of this month's budget, which Chancellor Rachel Reeves plans to implement expenditure cutbacks and tax increases totaling £40 billion.

Reeves cautioned ministers that "difficult decisions on spending, welfare, and tax" would be necessary when she finalizes the specifics of her first budget on October 30.

In order to prevent actual cuts to government agencies, she is creating plans to find £40 billion.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said that because inflation has been lower than most analysts anticipated, markets have been "piling on" bets for an interest rate drop when the Bank of England next meets in November.

The current interest rate in the UK is 5%. Since the end of 2021, when inflation spiked, in part because of rising energy costs after Russia invaded Ukraine, the Bank had been raising them gradually.

Yael Selfin, chief economist at KPMG UK, stated that the September decline in the inflation rate would be "enough" for policymakers to make a second cut in November after it made its first decrease in August and opted to retain them last month.

She did note that home energy prices increased by almost 10% this month, indicating that inflation was expected to rise once more.

(Sources: bbc.co.uk)