UK inflation fell to 3.6% in October, marking the first decline in five months and raising expectations of an interest rate cut following the chancellor's upcoming budget. The Office for National Statistics reported that the consumer prices index dropped from a peak of 3.8% in the previous three months, matching City forecasts and coming in below the Bank of England's prediction of 3.7%.
The decline was driven by slower rises in gas and electricity prices compared to a year earlier, along with a fall in hotel costs. However, food inflation accelerated to 4.9%, partially offsetting the overall drop. Despite the easing, inflation remains well above the government's 2% target, and the UK continues to have the highest inflation rate among G7 nations.
Chancellor Rachel Reeves welcomed the news, stating it is "good news for households and businesses" but vowed to do more to bring prices down. In her budget statement on 26 November, she plans to announce measures to cut living costs, including a potential reduction in VAT on domestic energy bills from 5% to 0%, which could save households about £80 annually. Reeves has also asked the competition watchdog to investigate rising private dental costs.
The Bank of England has signalled a possible post-budget interest rate cut in December, with financial markets now pricing in an 85% chance of a quarter-point reduction from the current 4% level. Core inflation, which excludes food and energy, fell from 3.5% to 3.4%, strengthening the case for a cut. However, economists caution that the budget's impact will be a key factor for rate-setters.
Shadow chancellor Mel Stride criticised the government, noting that inflation has been above target every month since Labour's last budget. Rising unemployment and slowing wage growth are expected to encourage the Bank to cut rates, though a potential rebound in headline inflation in November remains a risk.
