Inflation Slows to a Four-Month Low
The UK inflation rate fell to 3.6% in the year to October, its lowest level in four months, according to the Office for National Statistics. The slowdown was driven by smaller increases in household energy bills and a sharper-than-usual drop in hotel prices. Economists had expected inflation to ease slightly further to 3.5%.
Chancellor Signals Focus on Cost of Living Ahead of Budget
The figures arrive a week before the government’s Budget. Chancellor Rachel Reeves said she is determined to do more to bring prices down and acknowledged that inflation and the wider cost of living remain a burden for households. She has said the Budget will aim to ease those pressures through a mix of tax rises and spending cuts to stabilise public finances.
Food Prices Rise After September Dip
The strongest upward pressure on inflation came from food and non-alcoholic drinks. Annual food price inflation rose to 4.9% in October from 4.5% in September. Prices increased for bread, meat, fish, vegetables, chocolate, and confectionery, while fruit prices fell slightly. The Food and Drink Federation said higher ingredient and energy costs, along with packaging taxes and rising National Insurance, continued to affect manufacturers.
Energy Costs Rise at a Slower Pace Than Last Year
Gas and electricity prices rose over the year but at a much slower rate than in 2023. The Ofgem price cap increased by 2% this year compared with a 9.6% increase last year. ONS chief economist Grant Fitzner said October’s inflation easing was mainly due to these smaller energy bill rises.
Hotel Prices and Raw Material Costs Influence Overall Trends
Hotel prices typically fall between summer and Christmas, but this year’s decline was steeper than last year, adding further downward pressure on inflation. Fuel prices, however, increased, raising transport costs. Fitzner added that the annual cost of raw materials for businesses continued to rise, and factory gate prices also increased.
Interest Rate Outlook Shifts as Core Inflation Cools
Inflation remains above the Bank of England’s 2% target. The Bank held interest rates at 4% in November as inflation had remained “sticky” at 3.8% in previous months. Lower inflation could ease pressure on borrowers if rates begin to fall. Core inflation and services inflation both eased in October, supporting expectations of a gradual downward trend. Rob Wood of Pantheon Macroeconomics said he believes a December rate cut is now likely, though he expects a long pause before any further reductions.
Future Inflation Path Tied to Energy Costs and Budget Policy
The Bank said inflation appeared to have peaked in September without touching the 4% level it once forecast. The longer-term outlook will depend on global energy markets, commodity prices, climate-related factors, and any changes introduced in the forthcoming Budget. Possible measures include tax cuts on energy bills or broader tax rises or spending reductions that would have a deflationary effect.
Political Reactions Highlight Ongoing Pressure on Households
Shadow chancellor Sir Mel Stride said inflation has remained above target every month since Labour’s last Budget, leaving workers worse off. Liberal Democrat deputy leader Daisy Cooper urged the government to introduce emergency support to cut energy bills and reduce VAT for the hospitality sector.
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