The UK inflation rate fell to 3.6% in the year to October, marking its lowest level in four months, driven by moderated energy and hotel costs, though food prices rose again. This data, released ahead of the government’s Budget, offers hope for easing cost-of-living pressures and potential interest rate cuts.
The Office for National Statistics reported that consumer price inflation dropped from 3.8% in September to 3.6% in October, the first decline since March and the slowest pace since June. Economists had expected a slightly larger fall to 3.5%, but the figures still indicate a positive shift in curbing price rises. The release comes at a critical time, just a week before Chancellor Rachel Reeves unveils her Budget, with inflation remaining a key concern for households and policymakers.
A significant factor in the inflation dip was the smaller increase in household energy costs, which rose by 2% year-on-year due to changes in the Ofgem energy price cap, compared to a 9.6% hike in the previous year. Additionally, hotel prices fell more sharply than usual between summer and Christmas, contributing to the overall decline. These elements helped offset some upward pressures, though fuel prices increased, affecting drivers and delivery costs.
Food and non-alcoholic drink prices, however, exerted upward pressure, with inflation accelerating to 4.9% from 4.5% in September. Items such as bread, meat, fish, vegetables, chocolate, and confectionery saw price rises, while fruit prices decreased slightly. The Food and Drink Federation attributed this trend to rising costs for ingredients, energy, and regulatory expenses like packaging taxes and National Insurance increases.
Chancellor Rachel Reeves responded to the data by emphasizing her commitment to further reduce prices, acknowledging that inflation remains a burden on families across the country. The forthcoming Budget is expected to include a combination of tax rises and spending cuts to shore up government finances, with easing cost-of-living pressures as a primary goal. Political reactions varied, with critics highlighting sustained above-target inflation and calls for emergency measures.
The inflation report has implications for monetary policy, as the Bank of England’s 2% target remains unmet. The next interest rate decision on December 18 will focus on whether to lower rates from the current 4%. Analysts like Rob Wood of Pantheon Macroeconomics believe a December rate cut is now “nailed-on,” but predict a lengthy delay before further reductions, depending on underlying inflation trends.
Financial experts welcomed the news, with Sarah Coles of Hargreaves Lansdown describing a collective “sigh of relief” across the nation. Lower inflation could benefit borrowers, including mortgage holders, if interest rates fall, potentially boosting economic growth. However, core inflation measures, which exclude volatile food and energy prices, will be closely monitored to ensure the decline is sustained.
Looking ahead, the Bank of England will assess indicators like services inflation to determine if price rises have peaked. Global factors such as commodity prices and climate impacts, along with domestic fiscal policies in the Budget, will shape the inflation trajectory. While the data fosters optimism for continued disinflation, persistent food and fuel costs underscore the challenges in achieving stable prices and economic recovery.
