In October, UK inflation decreased to 3.6%, providing a positive cost of living relief for households. The Consumer Prices Index (CPI) inflation rate dropped from 3.8% in September, August, and July, marking the first decline since March and returning to its lowest level since June.

Although the decrease was not as significant as anticipated, with most economists predicting a drop to 3.5%, inflation remains above the Bank of England’s 2% target. The Office for National Statistics (ONS) attributed the decline in inflation to lower energy bills, particularly as gas and electricity costs increased less compared to the previous year.

Energy bills rose by 2% in October 2025 following an increase in the Ofgem price cap, significantly lower than the 9.6% surge in October 2024. Additionally, reduced hotel costs contributed to lowering inflation. However, rising food prices partially offset these declines, with food inflation climbing from 4.5% to 4.9% in October.

This latest inflation update precedes the Autumn Budget next week, where Chancellor Rachel Reeves aims to create room for the Bank of England to reduce interest rates by bringing down inflation further. Grant Fitzner, chief economist at the ONS, highlighted that lower inflation in October was primarily driven by milder increases in gas and electricity prices, alongside falling hotel prices, although rising food prices counteracted these effects.

Reeves expressed commitment to further price reductions in the upcoming Budget to address public priorities such as reducing NHS waiting lists, national debt, and the cost of living. Inflation reflects price increases, with lower inflation indicating a slower rate of price hikes rather than a halt in rising prices.

The Bank of England targets 2% inflation and has adjusted interest rates to manage inflation levels. Higher interest rates increase borrowing costs, leading to reduced spending, lower demand, and subsequently lower inflation. However, the previously elevated base rate had increased mortgage payments, straining household finances. Despite peaking at 5.25% in August 2023, the base rate has been gradually reduced to 4%.

Inflation escalated in 2021, reaching a peak of 11.1% in October 2022, predominantly driven by surging energy and food prices. Increased energy demand post-Covid, compounded by the Ukraine conflict, further elevated costs. September 2024 saw inflation at its lowest in three years at 1.7%, before a slight uptick in October.

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