Inflation fell to 3.6% last month, offering some relief for households and Rachel Reeves. Consumer Prices Inflation (CPI) had remained at the same 3.8% level for three months in a row. While a welcome slowing in the rate of price rises, the rate is still above the Bank of England’s 2% target. Most economists had expected CPI to have slowed to 3.5% in October.
Elevated food and drink prices have been putting pressure on overall inflation this year, with households seeing steep rises particularly for items such as chocolate, coffee, cheese and eggs. The figures released on Wednesday show food price inflation increased in October. Prices on average were 4.9% more expensive than in October 2024.
ONS Chief Economist Grant Fitzner said: “Inflation eased in October, driven mainly by gas and electricity prices, which increased less than this time last year following changes in the Ofgem energy price cap. The costs of hotels was also a downward driver, with prices falling this month.
“These were only partially offset by rising food prices, following the dip seen in September. The annual cost of raw materials for businesses continued to increase, while factory gate prices also rose.”
Chancellor Rachel Reeves said: “This fall in inflation is good news for households and businesses across the country, but I’m determined to do more to bring prices down.
“That’s why at the budget next week I will take the fair choices to deliver on the public’s priorities to cut NHS waiting lists, cut national debt and cut the cost of living.”
The latest inflation figure from the Office for National Statistics (ONS) may increase expectations the Bank of England will cut interest rates at its next rate-setting meeting on December 18.
Charlie Ambler, Co-Chief Investment Officer, Partner at wealth management firm Saltus, said: “Since the Bank of England signalled earlier this month that inflation has now peaked, expectation of an interest rate cut in December has been building.
“While inflation is still well above the 2% target, falling to 3.6% in October, the Bank is unlikely to abandon its slow and steady rate cutting cycle, which largely hangs on controlling services inflation and wage pressures.”
Suren Thiru, Economics Director at the Institute of Chartered Accountants in England and Wales, said although the conditions for a December interest rate cut were falling into place, the Budget would be a last obstacle.
He said rate-setters would want to gauge the effect of the policies announced by Ms Reeves on November 26 before authorising another rate reduction.
Monica George Michail, Associate Economist at the National Institute of Economic and Social Research, said the thinktank expects the BoE to make two rate cuts next year, but it would remain cautious in assessing the speed with which inflation is falling.
She added NIESR believed the upcoming Budget is less likely to be inflationary, but some risks remain in the inflation outlook stemming from elevated pay growth and high household inflation expectations.
Rebecca Florisson, Principal Analyst at the Work Foundation at Lancaster University, said while there may be “small respite” from surging prices, the International Monetary Fund suggests UK workers are due to face the highest level of inflation in the G7 group of countries over the coming years.
She added: “The cost of food is 4.8% higher than a year ago. This continues to put pressure on the least well off with only a third of low paid workers (34%) expecting an above inflation pay increase this year, compared to over two thirds of high paid workers (69%).
“With both employers and workers continuing to face inflation at 3.6%, the Government has a significant challenge in terms of how to best support the three million workers on the National Living Wage.
“At the Budget next week, the Chancellor must prioritise the living standards of lower earners by taking action to tackle the cost of essentials and ensuring their wages can rise in real terms during the years ahead.”