The Bank of England needs to pick up the pace in cutting interest rates, particularly after the latest inflation figures revealed a drop to 1.7% in September. This marks a significant milestone—the first time inflation has dipped below the 2% target in over three-and-a-half years. Julian Jessop, economics fellow at the Institute of Economic Affairs, believes this signals a shift that demands a more aggressive response.

"Today’s better-than-expected inflation data add to the growing evidence that UK interest rates are far higher than they need to be. The cooling in the labour market should also ease fears about services inflation," Jessop stated.

Although Jessop did acknowledge that the September figures were partially swayed by changes in transport costs—and cautioned that inflation could temporarily spike above 2% in October due to rising domestic energy bills—his overall outlook remains positive. He is confident that inflation will stay beneath the Bank of England’s own forecasts in the near future.

He further emphasized, “The Bank should therefore reduce rates by at least a quarter point at the November MPC meeting. Indeed, a large package of tax rises in the October Budget could tip the balance towards a half point cut.”

The message is clear: a gradual approach may no longer be enough. With inflation consistently cooling and labour market pressures easing, there’s a growing case for bolder moves on the interest rate front. Jessop is calling for a sharper cut, not just as a response to current conditions, but as a pre-emptive measure against potential shocks from looming tax hikes in the upcoming Budget.

While transport costs and energy prices might cause momentary bumps in the inflation road, the underlying trend points toward lower inflation than the Bank had anticipated. The case for rate cuts is gaining momentum, and with fiscal tightening on the horizon, it’s becoming harder to justify the current levels.