Inflation Shock Leads to BoE Caution on Rate Cuts

Inflation in the UK fell sharply in September, with volatile components causing the dip, according to Bank of England member Megan Greene. Despite pressure, Greene favors a gradual approach to interest rate cuts. The BoE held rates at 5%, with markets anticipating potential further cuts.

In a significant development, British consumer price inflation saw a sharp decline in September, attributed to more volatile components, according to Megan Greene, a member of the Bank of England's rate-setting committee. Speaking at the Atlantic Council, Greene expressed a preference for a gradual reduction in interest rates.

Inflation dropped to a three-year low of 1.7% in September, down from 2.2% in August, surpassing economists' predictions. The services component, usually a reliable indicator for long-term inflation, fell noticeably. Greene attributed this to fluctuating accommodation and transport costs, advising against overemphasizing these components.

While Greene voted against the BoE's recent rate cut, she reiterated caution in reducing borrowing costs despite pressures. The BoE maintained interest rates at 5% as of September. Financial markets predict probable quarter-point reductions in November and possibly December, although Greene warned inflation pressures, while decreasing, may not align with the expectations of other BoE policymakers.

(With inputs from agencies.)