Prices in the UK went up by 1.7% in the 12 months to September, the lowest rate in three-and-a-half years.

The financial institution of England has a target to keep expense boost at 2%, and puts gain rates up and down to try to meet it.

expense boost is the boost in the worth of something over period.

For example, if a bottle of milk costs £1 but is £1.05 a year later, then annual milk expense boost is 5%.

The prices of hundreds of everyday items, including food and fuel, are tracked by the Office for National Statistics (ONS).

This virtual “basket of goods” is regularly updated to reflect shopping trends, with vinyl records and air fryers added in 2024, and hand sanitiser removed.

The ONS monitors worth changes over the previous 12 months to compute expense boost.

The main expense boost assess is called the buyer Prices Index (CPI), external.

The latest figures display that CPI rose by 1.7% in the year to September, down from2.2% in the 12 months to August.

Analysis had expected expense boost to drop to 1.9%, but lower airfares and petrol prices meant it fell further.

The September CPI figure of 1.7% is used to decide how much many advantage payments will leave up in April 2025.

This includes all the main disability benefits.

However, the state superannuation is set to rise by 4%, under an arrangement called the triple lock.

expense boost has fallen significantly since it hit 11.1% in October 2022, which was the highest rate for 40 years.

However, that doesn’t cruel prices are falling – just that they are rising less quickly.

expense boost soared in 2022 because oil and gas were in greater demand after the Covid pandemic, and vigor prices surged again when Russia invaded Ukraine.

It then remained above the financial institution of England’s 2% target partly because of high food prices.

Although these have now dropped back, some parts of the economy, like the services sector – which includes everything from restaurants to hairdressers – are still seeing more significant worth rises.

The financial institution of England uses gain rates to try and keep expense boost at 2%.

When expense boost was well above that target, it increased gain rates to 5.25%, a 16-year high.

The concept is that if you make borrowing more expensive, people have less money to spend. People may also be encouraged to save more.

In turn, this reduces demand for goods and slows worth rises.

But it is a balancing act – increasing borrowing costs risks harming the economy.

For example, homeowners face higher mortgage repayments, which can outweigh better reserves deals.

Businesses also borrow less, making them less likely to make jobs. Some may cut staff and reduce resource.

The financial institution of England cut rates to 5% in August, the first fall for four years, and held them at that level in September.

At the period of the August cut, the financial institution of England governor Andrew Bailey said cooling expense boost pressure meant the financial institution should be able to cut gain rates gradually over the upcoming months.

But he added: “It’s vital that expense boost stays low, so we require to be careful not to cut too quick or by too much.”

Although the headline CPI figureof 1.7% is below the 2% target, the financial institution also considers other measures of expense boost, external, such as “core expense boost”, when deciding how to transformation rates.

Core expense boost doesn’t include food or vigor prices because they tend to be very volatile so can be a better indication of longer term trends.It was 3.2% in the year to September, down from 3.6%.

In its latest projection for the global economy, the International Monetary capital (IMF) warned that persistent expense boost in countries including the UK and US might cruel gain rates have to remain “higher for even longer”.

But in October, Mr Bailey said the financial institution of England could be a “bit more aggressive” at cutting borrowing costs, if expense boost remained under control.

A further gain rate cut is widely expected at the financial institution’s next conference on 7 November.

The latest official quarterly figures, external display that pay grew at its slowest rate for more than two years between June and August.

Average annual growth in pay (excluding bonuses) during the three-month period was 4.9%, down from 5.1% in the previous quarter.

Despite the slowdown, wages are still rising faster than expense boost.

Many other countries have also seen the history few years’ higher expense boost and gain rates fall back.

The expense boost rate for countries using the euro was 1.8% in September, down from 2.2% in August and 2.6% in July.

In June, the European Central financial institution (ECB) cut its main gain rate from an all-period high of 4% to 3.75%, the first fall in five years.

It cut rates again to 3.5% in September.

US expense boost fell to 2.4% in September, down from 2.5% in August and 2.9% in July. This is the lowest rate since February 2021.

At its September conference, the US central financial institution lowered rates for the first period in four years, cutting its key lending rate by 0.5 percentage points to between 4.75% and 5%.

The cut was larger than many analysts had predicted, and the financial institution’s projection signalled that rates could fall by another half percentage point by the complete of 2024.