Shock inflation fall eases rate rise fears but what will the BoE say today?

Yesterday's surprise drop in consumer inflation has eased some of the pressure on the Bank of England to hike base rates, before today's much-anticipated Inflation Report.

The Bank is expected to revise its forecasts to show the economy expanding faster than predicted just three months ago, and unemployment falling faster.

The accelerating recovery has led markets to price in the first base rate hike for 2015, rather than mid-2016 as governor Mark Carney originally indicated in his forward guidance in September.

This has led many intermediaries to urge buyers to take fixed-rate mortgages to protect themselves against a future rise in rates. Nine out of 10 new mortgages are now fixed rates.

But falling inflation eases some of the pressure on the Bank, bringing its close to its long-term target of 2% annual inflation, after years of overshoot.

Inflation fell to 2.2% in October, down from 2.7% in September, as measured by the consumer price index. That is the lowest rate of inflation for a year.

This followed a drop in education and transportation costs, while factory gate price inflation also fell.

With price pressures easing as the economy gathers momentum, the UK is on course to achieve robust quarterly growth of more than 1% mark in the final quarter of 2013, the Centre for Economics and Business Research predicted yesterday.

All eyes will be on the Bank and Mr Carney this morning as it announces its forecasts. If it does revise growth upwards and unemployment down, it will feed speculation of an earlier than expected interest rate rise, despite the surprise inflation dip.

Azad Zangana, European economist at Schroders, said: "We have been anticipating falls in the inflation rate for a while, although the larger than expected fall this month took us and the market by surprise.

"This should help allay fears that the Bank of England will be considering raising interest rates in the near future. While the unemployment rate is falling faster than the Bank had expected, inflation is also falling at a faster pace too."