UK Inflation Eases to 3.6 % in October, Opening Door for Rate Cut
Consumer price inflation falls for first time since May amid easing energy costs ahead of budget
Consumer price inflation in the United Kingdom dropped to 3.6 per cent in October, down from 3.8 per cent in September, marking the first decline since May and offering the government a welcome reprieve ahead of the upcoming annual budget.
The figure was in line with forecasts from the Office for National Statistics and market economists, and bolsters prospects of a possible interest-rate cut by the Bank of England in December.
The slowdown was driven mainly by softer utility and energy costs and a decline in hotel prices, while core inflation, which excludes food, energy, alcohol and tobacco, edged down to 3.4 per cent from 3.5 per cent.
Services inflation eased to 4.5 per cent — its lowest since December 2024 — although food and drink inflation rose to 4.9 per cent, suggesting persistent cost-of-living pressures for households.
The fall in inflation has already had market repercussions: sterling weakened modestly against the U.S. dollar, two-year gilt yields fell, and interest-rate futures priced in a faster pace of cuts in 2026. Analysts say that with inflation now appearing to be on a downward trajectory, growth softening and the budget pencilled in for 26 November, the conditions are largely in place for a Bank of England cut — though it is by no means assured.
Finance minister Rachel Reeves welcomed the data and emphasised the government’s intention to take “targeted action” in the budget to reduce inflation and ease the cost of living without reigniting price pressures.
She reiterated that recent tax and minimum-wage changes could have added as much as one percentage point to the inflation rate, which remains the highest among major advanced economies.
Despite the encouraging headline number, the Bank of England is exercising caution.
The central bank’s Monetary Policy Committee voted 5-4 against cutting rates in November, citing concerns that wage growth remains faster than is consistent with the inflation target.
Some analysts warn that one-off factors such as air-fare volatility may distort the services inflation figure, and emphasise that persistent food and drink inflation could keep underlying inflation elevated.
As policymakers await the budget and further data, the November reading offers a timely moment of relief but falls short of signalling an immediate return to price-stability.
The UK’s 2 per cent inflation target remains some way off, and focus now turns to whether this trend can be sustained through the first half of 2026.
The figure was in line with forecasts from the Office for National Statistics and market economists, and bolsters prospects of a possible interest-rate cut by the Bank of England in December.
The slowdown was driven mainly by softer utility and energy costs and a decline in hotel prices, while core inflation, which excludes food, energy, alcohol and tobacco, edged down to 3.4 per cent from 3.5 per cent.
Services inflation eased to 4.5 per cent — its lowest since December 2024 — although food and drink inflation rose to 4.9 per cent, suggesting persistent cost-of-living pressures for households.
The fall in inflation has already had market repercussions: sterling weakened modestly against the U.S. dollar, two-year gilt yields fell, and interest-rate futures priced in a faster pace of cuts in 2026. Analysts say that with inflation now appearing to be on a downward trajectory, growth softening and the budget pencilled in for 26 November, the conditions are largely in place for a Bank of England cut — though it is by no means assured.
Finance minister Rachel Reeves welcomed the data and emphasised the government’s intention to take “targeted action” in the budget to reduce inflation and ease the cost of living without reigniting price pressures.
She reiterated that recent tax and minimum-wage changes could have added as much as one percentage point to the inflation rate, which remains the highest among major advanced economies.
Despite the encouraging headline number, the Bank of England is exercising caution.
The central bank’s Monetary Policy Committee voted 5-4 against cutting rates in November, citing concerns that wage growth remains faster than is consistent with the inflation target.
Some analysts warn that one-off factors such as air-fare volatility may distort the services inflation figure, and emphasise that persistent food and drink inflation could keep underlying inflation elevated.
As policymakers await the budget and further data, the November reading offers a timely moment of relief but falls short of signalling an immediate return to price-stability.
The UK’s 2 per cent inflation target remains some way off, and focus now turns to whether this trend can be sustained through the first half of 2026.
