Key Highlights
- The UK inflation rate fell to 3.6% in the year to October.
- Inflation remains above the Bank of England’s 2% target.
- The biggest upward pressure on prices came from food and non-alcoholic drinks, with a 12-month inflation rate for food at 4.9%.
- The government’s upcoming Budget is expected to include measures to ease cost-of-living pressures.
UK Inflation Rate Drops to Four-Month Low
The UK’s inflation rate has dropped to its lowest level in four months, hitting 3.6% for the year ending October, according to the latest report from the Office for National Statistics (ONS). This decrease is seen as a relief by many economists and policymakers alike.
Key Factors Influencing Inflation
The fall in inflation was driven mainly by smaller rises in household energy costs and lower hotel prices. However, food prices rose again following a dip in September, with the 12-month rate for food at 4.9%, up from 4.5% in the previous month. This increase is attributed to rising costs for ingredients and energy, as well as “regulatory costs” including packaging taxes and National Insurance.
Chancellor Rachel Reeves emphasized her commitment to tackling inflation, stating that it remains a significant burden on families across the country. She highlighted that easing cost-of-living pressures is one of the main goals of the upcoming Budget, which is expected to include a combination of tax rises and spending cuts.
Impact on Monetary Policy and Future Trends
The Bank of England will be closely monitoring underlying core inflation, which strips out volatile food and energy costs, as well as services inflation. Both measures showed easing in October, raising hopes that inflation may now be on a downward trend. The next interest rate decision, due on 18 December, will focus on the longer-term impact of raising the cost of borrowing.
Rob Wood, chief UK economist at Pantheon Macroeconomics, believes that a December interest rate cut is “nailed-on” but predicts “a lengthy delay until another cut.” The Food and Drink Federation noted that food price inflation was due to rising costs for ingredients and energy, as well as regulatory factors.
Lower inflation could potentially help borrowers, including mortgage holders, if interest rates were to fall.
However, the Bank of England will keep borrowing rates higher if there is concern that prices are rising too quickly. The November meeting already held interest rates at 4% without further increases due to inflation being “sticky” at 3.8% over the past few months.
Government’s Response and Future Budget
The government’s upcoming Budget, just a week away from the release of this data, is expected to include measures to address cost-of-living pressures. Speculation has included suggestions that the chancellor could cut taxes on energy bills or introduce VAT cuts for the hospitality sector.
Shadow Chancellor Sir Mel Stride criticized Labour’s performance, stating that inflation had been above target every single month since their last Budget, leaving working people worse off. Liberal Democrat deputy leader Daisy Cooper called for “emergency measures to slash people’s energy bills” and a VAT cut for the hospitality sector.
The upcoming Budget could also affect inflation through policies such as spending cuts or tax rises, which might have deflationary impacts on the economy.
