Reports that UK inflation fell in October have been well-received this morning – not least because it indicates a rate cut from the Bank of England may well be coming in December to ease pressure.
The UK’s consumer price inflation index (CPI) fell to 3.6% in October – breaking a three-month streak of inflation sticking at 3.8% – offering some relief to the government and Bank of England.
The Office for National Statistics (ONS), which releases inflation data every month, said energy bills went up by less than they did a year earlier, which has helped to combat inflation – increasing by 2% in October 2025 compared to 9.6% in October 2024.
In addition, while consumer prices rose 0.4% from September to October, annual service price inflation cooled to 4.5% – down from 4.7%.
Derrick Dunne, chief executive of YOU Asset Management, said: “The reality is the economy now has a triumvirate of signals that indicate it is ready for rate cuts: loosening employment, faltering growth and now cooling price rises. The stars are one by one aligning for a December cut.”
George Brown, senior economist at Schroders, agreed the latest figures could serve as evidence that inflation has peaked.
“The Bank must tread carefully given the heightened risk that high inflation becomes entrenched,” Brown noted.
The Bank’s vote earlier this month was as close as they come, with the committee deciding to hold rates at 4% in a five-to-four split.
Brad Holland, director of investment strategy at JPMorgan Personal Investing, said: “While governor Andrew Bailey has been at pains to say that one good inflation reading is not enough to convince policymakers that inflation is reliably on the way back down, two might be enough,” said Holland.
“With the latest data following lack lustre growth figures out last week, the calls that action is needed are getting louder by the day. Markets are pricing in an 80% chance of a 0.25% interest rate cut in December, and the data is suggesting the time has probably come.”
However, any further rate cuts will also largely depend on the content of the chancellor’s red box, Brown said, adding that the elimination of VAT and green levies from household energy bills could cut inflation by as much as half a percentage point.
The UK’s economic picture also remains mixed.
“An almost 10% depreciation in GBP versus the Euro is adding to the cost of European imports,” Holland said.
“Petrol and domestic gas prices are lower than they were at the start of the year and manufacturing input inflation was only 0.8% in September, having been around zero since mid-2023.”
Earlier this month, the Bank forecast inflation would remain above its 2% target until mid-2027.