UK inflation fell to 3.6% in the year to October – its lowest level in four months – due to slower increases in household energy costs and falling hotel prices.
However, after a brief decline, food inflation picked up again, underlining the ongoing pressure on household finances just a week before the government presents its highly anticipated budget.
The latest figures from the Office for National Statistics (ONS) show a fall in inflation of 3.8% in September, although the fall was not as sharp as economists had predicted. The cut reinforces hopes that price pressures have peaked and could pave the way for future interest rate cuts even as inflation remains above the Bank of England’s 2% target.
Chancellor Rachel Reeves said she remained “committed to doing more to bring prices down” and acknowledged the cost of living “still places a huge burden on families across the country”. Reeves is expected to make easing cost pressures a central theme of the budget, which is likely to include a mix of tax increases and spending cuts to stabilize public finances.
The biggest upward pressure in October came from food and non-alcoholic drinks, with food inflation rising to 4.9% from 4.5% the previous month. Prices of bread, meat, fish, vegetables, chocolate and confectionery rose, but fruit became slightly cheaper.
The Food and Drink Federation said rising ingredient costs, energy and “regulatory burdens” – including packaging levies and higher social insurance – continued to drive up prices across the industry.
ONS chief economist Grant Fitzner said the main reason for the fall in the overall rate was a significantly smaller increase in household energy bills compared to last year. The Ofgem price cap rose by just 2% in October, compared to a rise of 9.6% in 2023.
Hotel prices also fell between summer and winter – a typical seasonal trend – but fell more sharply this year, leading to a decline in inflation. However, fuel prices rose again, leading to higher transportation and delivery costs.
Inflation within the supply chain remained high, with raw material costs and factory prices continuing to rise.
The Bank of England left interest rates at 4% earlier this month after inflation remained stubbornly high throughout the summer. But analysts now believe easing price pressures could prompt the bank to cut interest rates at its December 18 meeting.
Rob Wood, chief UK economist at Pantheon Macroeconomics, said a December cut was now “nailed in”, but he expects it will be a long time before the next cut.
Underlying inflation also improved, with both core inflation (excluding food and energy) and services inflation falling in October – signs that the Bank of England will view developments in the pace of future price increases positively.
The inflation figures have heightened the political debate as the government prepares its first budget. Reeves is reportedly considering measures such as tax cuts on energy bills or introducing deflationary spending adjustments to support the broader fight against inflation.
Shadow chancellor Sir Mel Stride said inflation “has been above target every month since the last Labor budget”, leaving families “worse off”.
Liberal Democrat deputy leader Daisy Cooper called on the Chancellor to “look this little gift horse in the mouth” and introduce emergency aid, including a VAT cut for the hospitality sector and immediate reductions in energy bills.
If inflation continues, it will ease pressure on mortgage holders and borrowers in general.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said the country was “sighing a sigh of relief” but warned that households were “far from out of the woods”.
