The UK inflation rate dropped to 3.6% in October, marking the lowest level in four months, primarily due to moderated energy price increases and lower hotel costs. This development raises hopes for potential interest rate cuts and eases some cost-of-living pressures ahead of the government’s upcoming Budget.
Inflation fell from 3.8% in September to 3.6% in the year to October, according to the Office for National Statistics (ONS). Economists had anticipated a slightly larger decline to 3.5%, but the data still indicates a positive trend after months of sticky inflation. The drop represents the first decrease since March, providing a glimmer of relief for households and businesses grappling with persistent price rises. This comes just a week before Chancellor Rachel Reeves is set to unveil her Budget, which is expected to address fiscal challenges amid ongoing economic uncertainties.
Key drivers behind the inflation dip included smaller rises in household energy costs and lower hotel prices. The Ofgem energy price cap led to a 2% increase in energy bills in October, significantly less than the 9.6% hike recorded a year earlier. Meanwhile, hotel rates declined more sharply than usual during the seasonal transition from summer to Christmas, contributing to the overall slowdown in price growth. These factors helped offset other inflationary pressures, such as rising fuel costs, which affected drivers and delivery services.
However, food prices continued to climb, with the annual inflation rate for food and non-alcoholic drinks rising to 4.9% in October, up from 4.5% in September. Items like bread, meat, fish, vegetables, chocolate, and confectionery saw notable price increases, though fruit prices experienced a slight decline. The Food and Drink Federation attributed this trend to higher costs for ingredients, energy, and regulatory expenses, including packaging taxes and increased National Insurance contributions. This persistent food inflation underscores the uneven nature of the cost-of-living crisis.
ONS chief economist Grant Fitzner highlighted that inflation eased mainly due to gas and electricity prices increasing less than in the previous year. He also noted that the annual cost of raw materials for businesses continued to rise, along with factory gate prices, indicating ongoing challenges in the supply chain. The data suggests that while headline inflation is moderating, underlying pressures remain, particularly in sectors sensitive to global commodity prices and domestic policy changes. This complexity will likely influence the Bank of England’s deliberations on interest rates.
Financial experts expressed cautious optimism, with Sarah Coles of Hargreaves Lansdown describing the inflation drop as a ‘sigh of relief’ for the country. She emphasized that slower price rises could alleviate household burdens and potentially lead to lower borrowing costs, benefiting mortgage holders. Rob Wood, chief UK economist at Pantheon Macroeconomics, predicted that a December interest rate cut is now ‘nailed-on,’ though he foresaw a lengthy delay before any subsequent reductions. These views reflect growing expectations that the Bank of England may soon shift its monetary policy to support economic growth.
Politically, Chancellor Rachel Reeves reaffirmed her commitment to tackling inflation, stating she is ‘determined to do more to bring prices down’ and recognizing the ongoing burden on families. Her Budget is expected to include measures like tax rises and spending cuts to stabilize government finances, with speculation about potential energy bill subsidies to further curb inflation. Opposition figures, such as Shadow Chancellor Sir Mel Stride, criticized the government for inflation remaining above the 2% target since the last Budget, while Liberal Democrat deputy leader Daisy Cooper called for emergency actions to slash energy bills and reduce VAT for the hospitality sector.
Looking ahead, the Bank of England’s next interest rate decision on December 18 will be closely watched, with core and services inflation—key indicators of future price trends—also easing in October. If inflation continues on a downward path, it could pave the way for sustained economic recovery, but uncertainties around global energy markets, commodity prices, and Budget policies remain. The upcoming fiscal announcement will be critical in shaping whether this inflation relief translates into broader financial stability and growth for UK consumers and businesses.
