UK inflation stays at 3.8% as food price rises slow for first time since March – business live | Business

Rob Wood, chief UK economist at Pantheon Macroeconomics, said widespread downside surprises across the inflation components raise the chances of an interest rate cut in December.

September was likely the peak in this inflation hump, and it came in 20bp weaker than the monetary policy committee [MPC] and we expected. 3.8% inflation is still uncomfortable territory for the MPC, nearly double their target, and we expect the path down to 2% to be protracted.

Some caveats mean we need to be cautious with this release. CPI was collected late, on September 16, compared to the September 9 date we and we think the market expected, which will have weighed on air fares and hotel prices. Underlying services inflation remains close to 4% and surveys suggest it will stay there at least until the spring. Erratic movements in some components, and a surprise in rents that the MPC look through, explain some of the downside.

But those caveats fail to over-ride the dovish news completely. So the five doves on the committee will likely take heart. A rate cut by December looks likely now. We still think the MPC will skip November—the growth data and stabilising jobs suggest they can afford to wait still—and the 26 November budget also seems forth waiting for, as well as another round of inflation data. We’ll chew over the data in detail today, but our initial reaction is that we will likely bring forward our rate cut call from February to December. We’re not throwing in the towel on our structural hawkish views, as we say we think the path down for inflation will be protracted. But the doves on the MPC will want to lower rates if they can.