In a positive development for UK households, inflation decreased to 3.6% in October. The Consumer Prices Index (CPI) inflation rate dropped from September’s 3.8%, signaling the first decline since March and bringing inflation back to its lowest point since June.
Despite expectations for a larger decline to 3.5%, economists were slightly off the mark as inflation remained above the Bank of England’s 2% target. The Office for National Statistics (ONS) attributed the decrease in inflation 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 in the Ofgem price cap, a significant decrease from the 9.6% surge in October 2024. Additionally, a decrease in hotel prices contributed to the drop in inflation. However, rising food prices partially offset these reductions, climbing from 4.5% to 4.9% in October.
This latest inflation update precedes the upcoming Autumn Budget, where Chancellor Rachel Reeves aims to create room for interest rate cuts by lowering inflation further. Grant Fitzner, ONS’s chief economist, noted that factors such as energy prices and hotel costs influenced the inflation rate, with food prices rebounding from a previous decline in September.
Chancellor Rachel Reeves expressed satisfaction with the inflation decrease but emphasized the need for continued efforts to reduce prices in the upcoming budget. Inflation reflects the rise in prices, indicating that an item priced at £1 last year would now cost £1.04 with a 4% inflation rate.
The Bank of England targets 2% inflation and uses interest rate adjustments to manage inflation levels. Despite interest rate hikes over the past two years to curb inflation, the current rate stands at 4% after several reductions from a peak of 5.25% in August 2023. Inflation surged to 11.1% in October 2022 due to increased energy and food costs, exacerbated by factors including the Covid pandemic and the conflict in Ukraine.
Following a low of 1.7% in September 2024, inflation began to rise again in October, indicating fluctuations in the economic landscape.