UK Inflation has fallen below 2% for the first time in three and a half years, piling further pressure on the Bank of England to cut interest rates at its meeting next month.

The consumer prices index dropped sharply to 1.7% last month, down from 2.2% in August. The plunge – fuelled by lower air fares and petrol prices – beat City economists’ forecast of a fall to 1.9%.

It is the first time annual price increases as measured by the Office for National Statistics have moderated to a level below the central bank’s 2% target since April 2021, giving positive news to the chancellor, Rachel Reeves, in the run-up to her budget in two weeks’ time.

Darren Jones, the chief secretary to the Treasury, said: “It will be welcome news for millions of families that inflation is below 2%. However, there is still more to do to protect working people, which is why we are focused on bringing back growth and restoring economic stability to deliver on the promise of change.”

The latest snapshot showed petrol and diesel prices fell on the month amid lower crude oil prices, which also helped to bring down the cost of raw materials for businesses. The declines were partly offset by the rising price of food and non-alcoholic drinks.

It comes despite concern that an escalation in the Middle East conflict could drive up oil prices and affect international shipping, with the potential to reignite inflationary pressures around the world.

Economists said the fall in inflation would add to the pressure on the Bank of England to cut interest rates after figures on Tuesday highlighted a slowdown in the jobs market.

Policymakers at the Bank are expected to cut interest rates by a quarter of a percentage point when they meet in November to 4.75%.

UK inflation has been on a downward trajectory since hitting a peak of 11.1% in October 2022, driven by increases in energy prices and a sharp rise in food prices.

However, investors warned that September’s decline in inflation could be reversed after a rise in Ofgem’s energy price cap for households in Great Britain at the start of this month.

Suren Thiru, the economics director at the Institute of Chartered Accountants in England and Wales, said: “Though the stars are aligning for a November rate cut, the upcoming budget is the final hurdle as rate setters will want to assess the inflationary impact of any measures announced before loosening policy again.”