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Relief for UK consumers as inflation drops more than expected

UK inflation fell more than expected in September to a three-month low
UK inflation fell more than expected in September to a three-month low

UK inflation fell more than expected in September to a three-month low, offering some relief to consumers who have been squeezed financially since the Brexit vote. 

Consumer prices rose at an annual rate of 2.4%, more than reversing August's jump to a six-month high of 2.7%, the Office for National Statistics said. 

That was well below the consensus forecast of 2.6% in a Reuters poll of economists. 

The figures are likely to reassure Bank of England officials who forecast in August that inflation would average around 2.5% over the July-September quarter. 

The Bank of England expects it will need to raise interest rates gradually in response to rising wages, assuming Britain manages to strike a deal with the European Union to smooth its exit from the bloc. 

The ONS said the basic wages of workers had risen at their fastest pace in nearly a decade over the summer months. But wage growth of 3.1% remains meagre by historical standards when adjusted for inflation. 

The Bank of England expects inflation to drift down but stay just above its 2% target in two years' time as it gradually raises borrowing costs. 

UK consumer price inflation hit a five-year high of 3.1% in November, when the inflationary effect of the pound's tumble after the Brexit vote in June 2016 reached its peak.

The ONS said food prices, particularly of meat and chocolate, represented the biggest drag on September's inflation rate. Ferry prices dropped from a "surprisingly high" summer peak. 

But there could still be more short-term pressure in the pipeline for UK consumer prices.

For manufacturers, the cost of raw materials - many of them imported - was 10.3% higher than in September 2017, up from a revised 9.4% in August. 

That was a bigger jump than any economist had forecast in the Reuters poll, which anticipated a rise of 9.2%.

Manufacturers increased the prices they charged by 3.1% compared with 2.9% in August, again stronger than all forecasts in the poll, which had pointed to a 2.9% increase. 

The ONS said house prices in August rose by an annual 3.2% across the UK as a whole, the smallest rise since August 2013 and compared with a 3.4% increase in July. 

Prices in London alone slipped 0.2%, the ONS added.