UK inflation fell to 3.6% in October, the first decline in five months, according to the Office for National Statistics. The drop from 3.8% in the previous three months matched City forecasts and was below the Bank of England's prediction of 3.7%, though still well above the government's 2% target.
The easing was driven by slower rises in gas and electricity prices compared to a year earlier, alongside a fall in hotel prices. However, food inflation accelerated to 4.9%, partly offsetting the decline. Core inflation, which excludes food and energy, fell from 3.5% to 3.4%.
Chancellor Rachel Reeves welcomed the figures, saying she is determined to bring prices down further. In her upcoming budget on 26 November, she plans measures to cut living costs, including potentially reducing the 5% VAT on domestic energy bills, which could save households about £80 a year.
Financial markets now see an 85% chance of a quarter-point interest rate cut in December, down from the current 4%. The pound fell slightly against the dollar as traders increased bets on a rate reduction. The Bank of England has cut rates five times since July 2024, with the last reduction in August.
Despite the decline, the UK still has the highest inflation rate in the G7. Shadow chancellor Mel Stride noted that inflation has been above target every month since Labour's last budget, leaving working people worse off. Economists warn the headline rate could rebound in November, but rising unemployment and slowing wage growth may encourage further cuts.
