Inflation drop driven by factors outside Rishi Sunak's control: Victoria Scholar

Core inflation also fell to 5.7 per cent, the lowest level since March 2022.

Energy costs have been coming down over the last year following the crisis last year and a reduction in the energy price cap, with gas costs down 31 per cent and electricity costs down 15.6 per cent.

However both remain higher over a two year period.

Food and non-alcoholic drinks inflation eased for the seventh straight month to 10.1 per cent, the lowest level since June 2022 with milk, cheese, eggs, yoghurt, and crisps prices falling.

Restaurant and hotel prices have been coming down too.

Prime Minister Rishi Sunak’s goal of halving inflation this year has been achieved ahead of schedule.

While he is likely to claim the drop in inflation as a win for his government, it has mostly been driven by factors outside of Sunak’s control such as the drop in energy prices after last year’s spike following Russia’s invasion of Ukraine, price cuts from supermarkets, restaurants and hotels to boost demand amid the sluggish consumer backdrop, and rising interest rates from the Bank of England that have encouraged saving and deterred spending and borrowing in the economy.

The Bank of England will be encouraged by the lower-than-expected inflation readings both at the headline and core levels with the central bank increasingly likely to keep rates on hold for the third consecutive time at its next decision meeting.

Reflecting this expectation, the pound was under pressure today against the US dollar and the euro and the yield on the 10-year UK gilt has fallen to the lowest level since the start of June.

UK housebuilders like Barratt Developments, Taylor Wimpey and Berkeley Group are trading sharply higher too amid broader gains for UK equities and growing risk appetite.

The central bank’s 14 straight rate hikes prior to September’s pause continue to make their way through the economy.

But with the Bank of England either at or very close to the peak of the rate hiking cycle, some mortgage lenders have been improving their offers with two-year fixed mortgage deals dipping below 5 per cent for the first time in five months.

Risk-on sentiment is fuelling gains for global equities.

European markets are trading higher with the FTSE 100 leading the gains up over 1 per cent to hit a one-month high after UK inflation fell sharply in October.

This follows strong gains on Wall Street with the Nasdaq surging 2.37 per cent to log its best day since April after US CPI fell by more than expected to 3.2 per cent, inching closer to the 2 per cent target, driving hopes that the Fed could be at the peak of its rate hiking cycle.

Overnight markets in Asia also rallied sharply with the Hang Seng gaining nearly 4 per cent.

China’s factory output and retail sales figures came in stronger than expected.

Victoria Scholar is Head of Investment for interactive investor, a leading flat-fee investment platform.