Inflation fell to 1.7% in September – raising the prospect of a base rate cut next month.
This was a bigger drop than expected, and represents a reduction from 2.2% August.
Core inflation, which excludes energy, food, alcohol and tobacco, was 3.2%, down from 3.6% in August.
Meanwhile services inflation fell from 5.6% to 4.9%.
Sarah Coles, head of personal finance, Hargreaves Lansdown, said: “Mortgage borrowers on tracker rates have waited a long time for more good news, but November should finally deliver a cut in their monthly costs.
“For those looking for a new fixed rate, or with a remortgage looming, there’s better news too, because mortgage rates are already lower.
“Cuts have been priced in, so Moneyfacts puts the average 2-year fix at 5.37% – down from 6.36% a year earlier.”
The Bank of England’s Monetary Policy Committee will next meet on November 7.
Peter Stimson, head of product at MPowered Mortgages, tempered expectations regarding steep rate cuts.
He said: “It’s tempting to regard such a big drop in inflation as the start of open season on cheaper mortgages.
“There’s just one snag in this rosy picture. The swaps market, which ultimately determines how lenders price their mortgages, has been rising for the past fortnight.
“So much so that one lender is currently offering a mortgage interest rate below the equivalent swap rate. Translation – it’s selling money for less than the wholesale price. Such crazy pricing is clearly unsustainable, but it also reveals the intense competition among lenders to win borrowers’ business.
“Swap rates are determined by a broader range of factors than just the Base Rate, including gilt yields, which have risen sharply amid investor uncertainty about the upcoming Budget.
“So while a November Base Rate cut now looks distinctly possible if not probable, there’s no guarantee it would instantly translate into much cheaper mortgages.”
