UK inflation rate fall continues

Cheaper airfares have helped keep inflation in check

A fall in the price of airfares helped to keep inflation under control in the UK in September, official figures show.

According to the Office for National Statistics, the consumer price index (CPI) fell by 0.2% in September to 1.1%, the lowest level since March.

Falling food prices helped cement the decline, which follows a fall in CPI to 1.3% in August.

The underlying rate of RPI inflation, which adds council tax and other household bills, fell by 0.3% to 1.9%.

The headline rate of RPI inflation, which further includes mortgage interest payments, fell by 0.1% to 3.1% in September.

Interest rates

Falling telephone costs in September also helped to keep the CPI figure well below the government's 2% target.

Consumer price inflation currently remains remarkably contained given record high oil prices on top of the recent strength of the economy Analyst Howard Archer

Economists say these latest declines makes it less likely that the Bank of England will need to raise interest rates again this year.

"Consumer price inflation currently remains remarkably contained given record high oil prices on top of the recent strength of the economy and disappearance of the output gap," said Howard Archer, analyst at Global Insight in London.

"This largely reflects the fact that competition on the high street remains intense, and consumers are generally very price conscious."

Food bills

The fall in the price of airfares, thanks to seasonal reductions in September being greater than in the same month last year, was mirrored on a smaller scale by reduced prices for sea travel.

In the food sector, the price of fresh produce was cheaper than last year, due to 2003's supplies being affected by that summer's adverse hot and dry growing conditions.

In the telecom sector, the cost of fixed line calls has fallen, reflecting cheaper calls to mobile phones.

Following the latest CPI figure, Holger Schmieding, analyst at the Bank of America in London, said it was now likely that UK interest rates would peak at the current 4.75%, before falling in the second half of next year.