Inflation in the UK came in unchanged at 3.8% in the year to September, defying expectations that it would hit 4%.
Chancellor Rachel Reeves declared that she was “not satisifed” and that she needed to do more to help those “putting in more and getting less out”.
The unexpectedly lower figure from the Office for National Statistics will offer some relief to the Treasury and the Bank of England ahead of the November budget and the next decision by the bank on interest rates.
It was the 12th month in a row CPI remained above the government’s 2% target but was below economists’ forecasts.
It may enable the Bank to the cut cost of borrowing one more time before the end of the year, though the consensus is for no change at the 6 November meeting of the monetary policy committee.
The chancellor, Rachel Reeves, has promised to ease the costs on households and businesses when she unveils her second budget on 26 November.
After today’s figures were published, she said: “I am not satisfied with these numbers. For too long, our economy has felt stuck, with people feeling like they are putting in more and getting less out.
“That needs to change. All of us in government are responsible for supporting the Bank of England in bringing inflation down.
“I am determined to ensure we support people struggling with higher bills and the cost of living challenges, deliver economic growth and build an economy that works for, and rewards, working people.”
The International Monetary Fund forecast last week that UK households would experience the highest inflation rate in the G7 this year and next.
Market reaction
Matthew Ryan, head of market strategy at global financial services firm Ebury, said: “The MPC is stuck between a rock and a hard place. The cooling in Britain’s jobs market is screaming out for further reductions in the base rate, but high inflation warrants a need for caution.
“We think that most officials will probably need to see more evidence that inflation has indeed peaked, but today’s data does at least mark a step in the right direction.
“We are not holding our breath for a November cut, which we see as essentially off the table. Markets now view a December cut as more likely than not, but we are still not entirely convinced just yet, and believe that elevated inflation could thwart any further easing until at least February.”
Kevin Brown, savings expert at Scottish Friendly, said: “September’s inflation reading will probably not be enough to persuade the Monetary Policy Committee to reduce borrowing costs again this year.
“Policymakers will want to see clear evidence that inflation is heading back towards their 2% target before acting, which means another rate cut this year remains unlikely.”
Luke Bartholomew, Deputy Chief Economist at Aberdeen, said: “A rate cut in November may still prove to be too soon, but the prospect of a December rate cut has increased and we still expect significant easing over the next year.”
Professor Joe Nellis is Economic Adviser at MHA, said: “Small ‘c’ conservatism is likely to win the day when the Monetary Policy Committee next meets in November.
“Inflation may have reached its peak but remains too high, meaning a hold on interest rates at 4% is almost a certainty. Policymakers will want more evidence that domestic price pressures — particularly from wages — are cooling before signalling any shift toward rate cuts.”
Martin Sartorius, principal economist, CBI, said: “Today’s downside surprise raises the possibility that a rate cut by the Bank of England’s Monetary Policy Committee could be back on the table in November.
“While some MPC members may prefer to keep rates on hold given the recent uptick in inflation expectations, September’s softer reading could give the broader committee greater confidence to reduce rates without risking further persistence in price pressures.”
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