UK annual inflation dropped to 1,5% in October to a three-year low, according to the Office for National Statistics (ONS).
That compares to 1,7% in September. Decelerating inflation can reflect anaemic growth, as the British economy grew by just 0,3% in the third quarter, given weaker consumer confidence and investment. However, the British labour market remains strong; at 3,8%, unemployment is a 45-year low.
Like most developed economies, the Bank of England sets its annualized inflation rate target at 2%. For 2020, the ONS now projects that inflation will remain subdued below the 2% mark. Traditionally inflation is the main independent variable in determining monetary policy.
The chances of a cut in interest rates by the Bank of England are now increased. Last week, two members of the BoE key policy body voted for cheaper borrowing in response to a growth downgrade prompted by Brexit and an ongoing trade war.
BoE official interest rates now stand at 0.75% and although there are fewer chances of a no-deal Brexit, the sharp drop in inflation may reflect rapid growth deceleration.