UK inflation drops below 2% target in September, weakening pound, and likely meaning a small increase in state benefits next year.   16:01 Bond trading giant Pimco is optimistic that Britain’s new government is unlikely to upset investors in its first budget this month.

Inflation in the U.K. has fallen to its lowest level in more than three years, a drop that has cemented market expectations that the Bank of England will lower interest rates at its next policy meeting.

This month's inflation rate is also normally used to set April's increase in benefits including jobseeker's allowance, maternity allowance, housing benefit and universal credit.

UK inflation fell more than expected to a three-year low of 1.7% in September, prompting the pound to fall and traders to increase bets on further rate cuts from the Bank of England this year. Wednesday’s data release by the Office for National Statistics showed inflation was back under the BoE’s 2% target for the first time since April 2021.

On the heels of fresh data released Thursday, the European Central Bank announced it would further cut key interest rates.