In a positive development for UK households, the inflation rate decreased to 3.6% in October. This drop in the Consumer Prices Index (CPI) inflation marked a decline from the 3.8% recorded in the previous three months, signaling the first decrease since March this year and bringing inflation back to its lowest level since June.
Despite the welcome decrease, the drop was not as substantial as anticipated, with most economists predicting a fall to 3.5%. Moreover, inflation remains above the Bank of England’s target of 2%.
The Office for National Statistics (ONS) attributed the decrease in inflation in October to lower energy bills, as gas and electricity prices rose less compared to the previous year. Energy bills saw a 2% increase in October 2025 following adjustments to the Ofgem price cap, significantly lower than the 9.6% surge in October 2024. Additionally, a reduction in hotel prices contributed to lowering inflation.
However, the impact of rising food prices, which rebounded after a dip in September, partially offset these declines. Food inflation rose from 4.5% to 4.9% in October.
This latest inflation update precedes the Autumn Budget, with Chancellor Rachel Reeves expressing a desire for inflation to decrease further to provide room for potential interest rate cuts by the Bank of England.
Grant Fitzner, the chief economist at the ONS, noted that the easing of inflation in October was primarily driven by less significant increases in gas and electricity prices compared to the previous year. He also highlighted the drop in hotel prices as a contributing factor, although rising food prices counteracted these declines.
Chancellor Rachel Reeves emphasized the importance of the inflation decrease for households and businesses, pledging to take measures to further reduce prices in the upcoming Budget to address public priorities such as cutting NHS waiting lists, national debt, and the cost of living.
Inflation serves as a measure of price increases, where a 4% inflation rate would mean that an item costing £1 last year would now cost £1.04. Lower inflation rates indicate a slower rate of price increases rather than a halt in rising prices.
The ONS calculates inflation based on a basket of goods and services that represent consumer purchases. While headline inflation figures provide an average representation, individual prices of specific goods may vary.
The Bank of England targets 2% inflation and has adjusted interest rates to mitigate inflationary pressures. Higher interest rates increase borrowing costs, reducing consumer spending and demand, ultimately leading to lower inflation. Despite efforts to combat rising inflation, previous interest rate hikes have strained households, particularly impacting mortgage payments.
Inflation experienced a surge in 2021, peaking at 11.1% in October 2022, primarily driven by increased energy and food costs. The demand for energy surged post-Covid and further escalated due to the Russian invasion of Ukraine, subsequently raising food prices as well.
Although inflation reached its lowest point in three years in September 2024 at 1.7%, it began to climb again in October, indicating a fluctuating trend in recent months.