UK inflation holds steady at three-year low

The UK's headline inflation rate was unchanged in September, remaining below the Bank of England's 2% target, according to figures released by the Office for National Statistics on Wednesday.

The headline consumer price index was steady at 1.7% on an annual basis - its lowest rate since December 2016 - versus expectations for an uptick to 1.8%. Fuel prices fell 2.1%, marking their biggest decline since 2016.

Core inflation, which strips out volatile food and energy items, rose to 1.7% from 1.5% in August, in line with consensus forecasts.

On a monthly basis, the consumer price index was up 0.1%, down from 0.4% the month before and below expectations of 0.2%.

Mike Hardie, head of inflation at the ONS, said: "Motor fuel and second-hand car prices fell, but were offset by price increases for furniture, household appliances and hotel rooms.

"Annual growth in UK house prices showed a moderate pick-up in August although it remains below the increases seen throughout 2018. Wales saw the strongest growth with prices continuing to fall in London and the South East."

Artur Baluszynski, head of research at wealth management firm Henderson Rowe, said: "Absent hard Brexit and a significant decline in sterling inflation are likely to keep undershooting BoE’s 2% target.

"Meanwhile, the decelerating global demand could act as another deflationary impulse as Chinese goods blocked by tariffs in the US are likely to make their way towards Europe. BoE is likely to stay put for a while as, considering how fragile the UK economy is at the moment, a policy mistake would be disastrous."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "September’s below-consensus headline inflation rate does not boost the chances that the Monetary Policy Committee will cut Bank Rate over the next six months, as the 1.7% rate matches its forecast in August’s Inflation Report."

"Looking ahead, the headline rate likely will remain below the 2% target in Q4. Energy’s contribution to the headline rate looks set to fall by a further 0.2pp in October, when the cap of standard variable tariffs for electricity and natural gas will be reduced by 6%. Nonetheless, sterling’s recent depreciation points to core goods inflation rising to about 1.5% in the first half of 2020, from 0.3% in August, boosting the headline rate by 0.3pp."