UK inflation eases for first time in five months to 3.6% before crunch budget

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UK inflation fell to 3.6% in October, easing the path for the Bank of England to cut interest rates after the chancellor Rachel Reeves’s make-or-break budget next week.The Office for National Statistics (ONS) said annual inflation as measured by the consumer prices index cooled for the first time in five months, falling back from a peak of 3.8% over July, August and September.The latest snapshot showed gas and electricity prices rising at a slower pace than a year earlier contributed most to the decline, alongside a fall in hotel prices.

However, this was partially offset by food and inflation accelerating to 4.9%.The decline matched City economists’ forecasts and was below the 3.7% rate predicted by the Bank, but was still well above the government’s 2% target.Reeves has vowed to cut living costs in her highly anticipated tax and spending statement on 26 November, including measures to bring down the inflation rate to smooth the path for the Bank to cut interest rates.

The chancellor 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,”On Tuesday evening, Reeves said she had asked the UK competition watchdog to look into the rising cost of private dental treatment amid growing concern about soaring prices,The chancellor is also understood to be considering cutting the 5% VAT rate on domestic energy bills, a move that could save bill payers about £80 a year and cost £2,5bn to introduce.

Last week, the Bank opened the door to a post-budget cut in borrowing costs in December after it signalled inflation had probably peaked amid mounting fears over the strength of the economy.Threadneedle Street forecasts inflation is on track to ease to about 2.5% next year, before returning to its 2% target over the course of 2027.After the release of the latest figures, the pound fell by about 0.2% against the dollar to $1.

31 as traders raised bets on a December rate cut.Financial markets shifted to reflect an 85% chance of a quarter-point cut from the current level of 4%.Strengthening the case for a reduction in rates from as early as next month, core inflation – which excludes food and energy and is closely watched by the Bank – fell from 3.5% in September to 3.4%.

Sign up to Business TodayGet set for the working day – we'll point you to all the business news and analysis you need every morningafter newsletter promotionBorrowing costs have been cut five times since Labour came to power in July 2024, with the last reduction in August, while Reeves has talked up the importance of lower rates as a critical route to supporting households with living costs.However, the UK continues to face the highest inflation rate in the G7, with households under pressure from fast-rising food prices in particular.Mel Stride, the shadow chancellor, said: “Inflation has been above target every single month since Labour’s last budget, leaving working people worse off.”Highlighting the pressure on families, rising prices for bread, cereals, meat and vegetables drove up annual food and drink inflation from 4.5% in September to 4.

9% in October.Economists said it was possible the headline inflation rate could rebound in November.However, rising unemployment and slowing wage growth is expected to encourage the Bank to cut rates, depending on the outcome of the budget.Suren Thiru, the economics director at the Institute of Chartered Accountants in England and Wales, said: “Though the conditions for a December interest rate cut are falling into place, the budget is a last obstacle as rate-setters will want to gauge the effect of the policies announced before authorising another rate reduction.”
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