The Consumer Prices Index (CPI) dropped to an annual rate of 1.1% in September from 1.6% in August. Meanwhile, the Retail Prices Index (RPI) inflation measure, which includes mortgage interest payments and housing costs, fell to - 1.4% from -1.3%. This was the lowest level since September 2004, and put further pressure on sterling. The threat of a period of outright deflation late next year or beyond cannot be discounted.

The slide in inflation was greater than had been expected, but was largely attributed to the spike in energy prices seen a year ago, which meant prices in September this year were considerably lower. Electricity, gas and other fuel bills fell by 7.3% on the year, the Office for National Statistics (ONS) said. Overall prices in September were unchanged from those seen in August, the ONS added.

The inflation data showed that the Bank of England pumping of about £160bn into the economy’s money supply, so called quantitative easing, had not yet taken effect. This data enables the Bank of England with further reason to expand the quantitative easing programme if it so wishes.

The UK market has opened up 1.25% and the European markets have followed suit. U.S futures markets are pointing to a positive start when their markets resume trading this afternoon. Futures currently forecast the Dow to open up around 88 points; the Nasdaq and S&P to open up 19 points and 10 points respectively.

Sources: Reuters: BBC: Bloomberg: Lawshare: Deutsche Bank (db): Proquote: Financial Times: Wall Street Journal: CLSA: Sharescope: Market News. Capital Economics: CNBC: Wikipedia: GaveKal:

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