In a positive development for UK households, inflation decreased to 3.6% in October. This drop in the Consumer Prices Index (CPI) inflation rate from the 3.8% recorded in the previous three months signifies the first decline since March this year, bringing inflation back to its lowest point since June.
Despite this improvement, the decrease was not as substantial as anticipated, as most economists had projected a drop to 3.5%. Furthermore, 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, with gas and electricity costs rising less compared to the previous year. Energy bills saw a 2% increase in October 2025 following adjustments to the Ofgem price cap, a significant decrease from the 9.6% surge in October 2024. Additionally, a reduction in hotel prices contributed to the decline in inflation.
However, the impact of rising food prices partially offset these reductions, with food inflation climbing from 4.5% to 4.9% in October.
This latest inflation update precedes the Autumn Budget, with Chancellor Rachel Reeves expressing the desire for inflation to decrease further to provide flexibility for the Bank of England to lower interest rates.
Grant Fitzner, the chief economist at the ONS, highlighted that the easing of inflation in October was primarily driven by milder increases in gas and electricity prices compared to the previous year. He also mentioned that hotel prices decreased during the month, although this was offset by an uptick in food prices following a decline in September.
Chancellor Rachel Reeves emphasized the significance of the inflation decline for households and businesses, underscoring her commitment to further reducing prices. She announced plans to address public priorities, including reducing NHS waiting lists, national debt, and the cost of living, in the upcoming Budget.
Inflation serves as a metric for measuring price escalations, indicating how the cost of goods and services changes over time. The ONS calculates inflation based on a diverse “basket of goods” that represents typical consumer purchases.
The Bank of England maintains a 2% inflation target and adjusts interest rates to manage inflation levels. Higher interest rates can curb spending, leading to reduced demand and subsequently lower prices, thereby mitigating inflationary pressures.
Following a peak of 11.1% in October 2022, inflation began to subside, reaching its lowest point in three years at 1.7% in September 2024 before a slight uptick the following month. Factors contributing to the inflation rise included heightened energy and food costs, influenced by increased energy demand post-Covid and disruptions due to the conflict in Ukraine.
The fluctuation in inflation levels reflects the complex interplay of economic factors impacting consumer prices and household budgets.