UK inflation shows surprise fall

The cooling property market has helped to trim inflation

The UK inflation rate recorded a surprise dip in October, official figures have shown.

The underlying rate, which excludes mortgage interest payments, dropped to 2.7%, down 0.1% on the previous month.

The main reason for the fall was a slower rise in house prices than a year ago.

The Harmonised Index of Consumer Prices, which is due to be adopted for the new inflation target, was unchanged at 1.4%.

The headline inflation rate, which includes mortgage interest payments, dropped to 2.6% from 2.8% in September, its lowest for almost a year.

In addition to slowing house price rises, the inflation figure was also pulled lower by cheaper foreign holidays and a smaller rise in university fees.

No rush to raise rates

The Bank of England is charged with keeping underlying inflation within one percentage point of 2.5%.

Two weeks ago its monetary policy committee (MPC) raised interest rates to 3.75% following concerns that consumer debt and house prices were rising to dangerously high levels.

The MPC will not be in any need to rush... our view is that the next (interest rate) hike will be in February David Page, Investec

There had been talk that the bank would push through more rises in the near future, but analysts said these weaker-than-expected inflation figures would now dampen such speculation.

"There has been some excitable speculation that the Monetary Policy Committee might act immediately after the November hike by raising interest rates again in December," said David Page, an economist at Investec.

"I think this just showed that the MPC will not be in any need to rush. Our view is that the next hike will be in February."

Adam Chester, an economist at Halifax, said the Bank would be more interested in how lavish people are with their Christmas shopping.

"I don't think it (the inflation figure) is going to have a significant influence one way or the other," he said.

"More importantly, it's going to be what consumer spending data shows ahead of Christmas."