Tumbling petrol prices pushed British annual consumer price inflation down for the first time in more than a year in October and at the fastest pace since the series began in 1997, official data showed on Tuesday.
The Office for National Statistics said consumer price inflation dropped to 4.5 percent year-on-year in October from 5.2 percent the previous month, taking it to its lowest level since July. Analysts had forecast a more modest drop to 4.8 percent.
Month-on-month prices fell 0.2 percent, compared with a 0.5 percent rise in September.
Interest rate futures rallied on the figures as investors bet that the Bank of England's dramatic 1.5 percentage point interest rate cut to 3.0 percent last weeks would be followed by more reductions in the next few months.
Even core inflation, which strips out fuel and food, fell, suggesting the downward pressure on prices was broad-based. Core inflation fell to 1.9 percent in October from 2.2 percent in September.
"(This is) encouraging news," said George Buckley, chief UK economist at Deutsche Bank. "That leaves the door open for a bigger cut than we're currently expecting at the (central) Bank's December meeting, which is 50 basis points."
The biggest contributor to the fall was transport, which alone subtracted 0.5 percentage points from the annual CPI rate. The average price of petrol fell by more than 7 pence per litre during the month, compared with a rise of nearly 3 pence in October last year.
Lower meat prices also contributed to the fall.
Retail price inflation, on which many wage deals are based, fell to 4.2 percent from 5.0 percent in September. The monthly deceleration in the annual rate was the biggest since January 1993.
Many economists expect retail price inflation to turn negative next year as recession bites and house prices fall.
Jonathan Loynes at Capital Economics warned that the Bank of England's targeted measure of inflation, CPI, could also slip into negative territory.
"This is the first step along a road that is likely to end in the first bout of deflation in the UK economy in almost half a century," he said.
