By William Schomberg and Andy Bruce
LONDON (Reuters) - British inflation fell to its lowest level in nearly three years in October, official data showed on Wednesday, adding to expectations that the Bank of England's next move might be an interest rate cut.
Consumer prices rose at an annual rate of 1.5%, lower than September's 1.7%, as a power regulator's tariff cap pushed down electricity and gas prices for 15 million homes.
It was the lowest consumer price index reading since November 2016, the Office for National Statistics said, giving households, whose spending has helped the economy through the Brexit crisis, a bit of a boost before next month's election.
A Reuters poll of economists had pointed to a 1.6% increase.
British government bond prices jumped, with the yield on 10-year gilts (GB10YT=RR) falling by more four basis points on the day.
"Inflation dipping more than expected to 1.5% in October will... likely fan expectations that the Bank of England will cut interest rates before too long if the economy fails to pick up from its current struggles," said Howard Archer, an economist with forecaster EY Item Club.
Two BoE policymakers voted to cut rates last week, citing signs of a cooling in the labour market, and their colleagues sounded cautious about the slower global economy and Brexit risks.
"Overall, the figures do little to change our view that inflation will spend more time below 2% than above it in 2020 and that if Brexit is delayed further, interest rates will be cut, in May 2020," Ruth Gregory, an economist at Capital Economics, said after the ONS data on Wednesday.
The BoE expects inflation to slow to 1.25% early next year due to energy and water price caps.
Gas and electricity prices fell by 8.7% and 2.2% respectively in October from September, which was only partially offset by rising clothing prices. Falling motor fuel prices also helped push down inflation.
A measure of inflation that excludes energy, fuel, alcohol and tobacco was unchanged at 1.7%.
Other ONS figures suggested no short-term inflation pressure.
Manufacturers' raw material and energy costs fell by 5.1% in annual terms last month, their biggest slide since April 2016.
The Reuters poll had pointed to a 4.9% fall.
Manufacturers raised the prices they charged by an annual 0.8%, the weakest increase since August 2016.