Chancellor Jeremy Hunt is free to announce tax cuts in the autumn statement next week after inflation sharply fell in the latest figures, an economist says.
Inflation fell to 4.6 percent for the year to October, down from 6.7 percent in September, marking the first time inflation has fallen below five percent in the past two years.
Julian Jessop, economics fellow at the Institute of Economic Affairs, said: “The sharp fall means that inflation is back on track to the Bank of England’s two percent target next year.
“This should slam the door on any further increases in interest rates and bring forward the timing of the first cut. The sharp drop also fulfils the Prime Minister’s target of halving inflation and removes at least one obstacle to tax cuts in the Autumn Statement.
“These are likely to focus on business taxes, with any big changes in personal taxes held back until the Budget in the Spring.”
The economist said Mr Hunt will be keen to claim his actions have helped drive down inflation but this may not be the case.
Mr Jessop said: “The Government will claim that inflation would have been slower to fall if it had not taken tough decisions on fiscal policy, notably on public sector pay, spending and tax. But this is debatable.
“The drop in inflation mainly reflects the tightening in monetary policy, the global economic slowdown, and the decline in commodity prices, rather than anything the government has done.”
The latest inflation figures mean Prime Minister Rishi Sunak has fulfilled his pledge to halve inflation in 2023, as it stood at just above 10 percent in January.
Mr Sunak said: “Inflation works like a tax. It eats into the pound in your pocket, affecting the price of your food shop, your mortgage, the size of your pension pot. This is why halving inflation has been my number one priority.
“Getting it down has involved hard decisions and fiscal discipline. Official figures released this morning confirm we have halved inflation meeting the first of the five priorities I set out at the beginning of this year.
“But while it is welcome news that prices are no longer rising as quickly, we know many people are continuing to struggle, which is why we must stay the course to continue to get inflation all the way back down to two percent.”
Liam Halligan, economist at GB News, spoke about what the dip in inflation means for ordinary people. He said: “It means prices aren’t going down but they are going up less quickly than they have in a couple of years.
“This also means interest rates have probably peaked. I doubt we’re going to get another interest rate rise now because of this dramatic reduction in inflation.
“It means mortgage rates are going to come down quite sharply. We’ve already seen that in the last couple of days as speculation about the figure has grown.”
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