Fall in UK inflation looks like turning point that heralds interest rate cut

1 hour ago7 min read

The long-awaited turning point in the UK's inflationary saga has finally arrived, with the October consumer prices index retreating to 3. 6% from the previous month's 3.8%. This isn't just a statistical blip; it's the signal the market has been holding its breath for, a definitive shift that sets the stage for the Bank of England to pivot from its hawkish stance.For months, the Monetary Policy Committee has been navigating a treacherous path, its hands tied by stubborn price pressures that refused to abate despite 14 consecutive rate hikes. Now, with the pressure on shoppers, businesses, and the Treasury beginning to subside, the calculus is changing.Chancellor Rachel Reeves is already hinting at budget measures designed to further anchor inflation expectations, creating a powerful fiscal-monetary tandem that could accelerate the descent toward the Bank's sacred 2% target. The trajectory now points toward a potential interest rate cut as early as the first quarter of next year, a move that would send ripples through gilt markets and recalibrate sterling's strength.Looking at the core inflation data—stripping out volatile food and energy—reveals an even more encouraging story of underlying price stability. This mirrors, albeit with a lag, the disinflationary process that has already taken root in the United States and the Eurozone, where central banks have begun their own easing cycles.Historical precedent suggests that once inflation breaks from a high plateau, the decline can gain momentum quickly, much like the rapid disinflation witnessed after the Volcker shock of the early 1980s. For investors, this opens a new playbook.Sectors sensitive to borrowing costs—real estate, consumer discretionary, and small-cap equities—stand to benefit enormously from cheaper credit. The FTSE 100, with its heavy weighting in commodity producers and multinationals, may see a more nuanced reaction, but the domestic-focused FTSE 250 is poised for a significant re-rating.The pound's recent resilience will face a test as yield differentials narrow, potentially offering relief to UK exporters. Yet, caution remains the watchword.The Bank's Governor will be scrutinizing wage growth data and service sector inflation with a microscope, wary of declaring victory prematurely. The path to 2% is rarely linear, and geopolitical shocks or a resurgence in energy costs could yet disrupt this nascent trend. But for the first time in a long while, the data is aligning with hope, charting a course away from the cost-of-living crisis and toward a more stable economic future.

#featured

#UK inflation

#interest rates

#Bank of England

#Rachel Reeves

#budget

#consumer prices

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