In October, inflation in the UK decreased to 3.6%, providing a positive impact on the cost of living for households. This drop in the Consumer Prices Index (CPI) inflation rate from the previous 3.8% recorded in September, August, and July signifies the first decline since March this year, bringing inflation back to its lowest level since June.
Although economists had anticipated a larger decrease to 3.5%, the actual figure remained above the Bank of England’s 2% target. The Office for National Statistics (ONS) attributed the decline in inflation to lower energy bills in October, as gas and electricity costs rose less compared to the previous year.
Energy bills increased by 2% in October 2025 following an adjustment in the Ofgem price cap, a significant decrease from the 9.6% hike in October 2024. Additionally, reduced hotel prices contributed to lowering inflation. However, the rise in 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, with Chancellor Rachel Reeves expressing the desire for inflation to decrease further, allowing room for potential interest rate cuts by the Bank of England. Grant Fitzner, the chief economist at the ONS, highlighted the contributions to the inflation decrease, emphasizing the impact of energy prices and food costs.
Chancellor Rachel Reeves stated her commitment to addressing price reductions in the upcoming Budget to benefit households and businesses. Inflation serves as a measure of price increases, indicating the change in the cost of goods and services over time. The ONS determines inflation based on a standard basket of goods and services reflecting consumer spending habits.
Maintaining a target of 2% inflation, the Bank of England adjusts interest rates to manage inflation levels. Higher interest rates lead to reduced spending, curbing demand and subsequently lowering prices to combat inflation. However, fluctuations in interest rates have financial implications for mortgage holders, with the base rate standing at 4% following multiple adjustments.
Inflation had surged to 11.1% in October 2022 due to escalating energy and food prices, exacerbated by increased demand post-Covid and global conflicts. Despite reaching a low of 1.7% in September 2024, inflation has been gradually rising, underscoring the ongoing economic challenges.