British inflation slowed for the first time in more than year in October to signal price pressures may have peaked and leave the door open for a Bank of England (BoE) interest rate cut next year.
Official data today showed cheaper petrol helped to lower the annual rate of consumer price inflation to 2.3 per cent from a record 2.5 per cent the month before.
It was still the fourth month CPI exceeded the BoE's 2 per cent target, but signs energy costs are no longer pushing up inflation as fast as they were sparked a rally in interest rate futures, already up this week after soft factory gate inflation.
"The Bank of England, like other central banks, are clearly on inflation alert but so far so good, as the producer and consumer price data should help to ease those fears," said John Butler, economist at HSBC.
"At the beginning of next year the focus will shift away from inflation back on to the expected disappointment in growth and that should allow interest rates to fall further."
The BoE's Monetary Policy Committee cut rates in August to 4.5 per cent but by the narrowest of margins, leaving Governor Mervyn King outvoted and analysts are split over whether the central bank will trim rates again.
The central bank publishes its latest economic forecasts tomorrow which will give markets a clearer picture on how concerned policymakers are about inflation further out.