In a welcome development for British households, the pace of price increases across the UK has slowed for the first time since May, offering a glimmer of relief ahead of the government's pivotal budget announcement.
A Significant Cooldown in Price Pressures
The Office for National Statistics (ONS) confirmed that the annual inflation rate, as measured by the Consumer Prices Index (CPI), cooled to 3.6% in October. This marks a decline from the 3.8% rate recorded throughout July, August, and September, representing the first drop in five months.
This easing of inflationary pressures aligns with the predictions of City economists, who had forecast the dip to 3.6%. Despite this positive shift, it is crucial to note that the current rate remains substantially higher than the government's official target of 2%.
Budget Implications and the Bank of England's Next Move
The timing of this economic data is critical, arriving just days before Chancellor Rachel Reeves is set to deliver her highly anticipated tax and spending statement on 26 November. Reeves has publicly committed to implementing measures designed to cut living costs and bring down the inflation rate further.
A successful reduction in inflation is seen as essential to smoothing the path for the Bank of England to consider cutting interest rates. Threadneedle Street had already signalled earlier this month that inflation had likely peaked, opening the door for a potential reduction in borrowing costs as soon as December.
A Path Towards Lower Borrowing Costs?
Since the Labour government came into power in July 2024, the Bank of England has already reduced borrowing costs on five separate occasions, with the most recent cut taking place in August. This latest inflation data will fuel hopes that a period of sustained disinflation could be underway, potentially leading to further relief for mortgages and loans in the new year if the trend continues.
All eyes are now on the upcoming budget, where the Chancellor's actions will be scrutinised for their effectiveness in tackling the cost of living and setting the stage for the next phase of monetary policy.
