In October, the UK saw a decrease in inflation to 3.6%, providing a positive impact on the cost of living for households.
The Consumer Prices Index (CPI) inflation rate dropped from the previous 3.8% recorded in September, August, and July, marking the first decline since March and bringing inflation back to its lowest level since June.
Although the decrease was not as significant as anticipated, with most economists predicting a fall to 3.5%, inflation remains above the Bank of England’s 2% target.
According to the Office for National Statistics (ONS), energy bills played a crucial role in driving down inflation in October as gas and electricity costs rose less compared to the previous year.
Energy bills increased by 2% in October 2025 following the Ofgem price cap adjustment, a much smaller rise compared to the 9.6% surge in October 2024. Additionally, reduced hotel costs contributed to the overall decrease in inflation.
However, the rise in food prices partially offset these reductions, climbing from 4.5% to 4.9% in October.
This update precedes the Autumn Budget, where Chancellor Rachel Reeves aims to lower inflation, providing the Bank of England with the opportunity to reduce interest rates.
Grant Fitzner, the chief economist at the ONS, highlighted that lower gas and electricity prices were the main drivers behind the October inflation easing. Hotel prices also contributed to the decrease, while food prices rebounded after a dip in September.
Chancellor Rachel Reeves emphasized the importance of further price reductions to benefit households and businesses, outlining plans to address public priorities such as NHS waiting lists, national debt, and the cost of living in the upcoming Budget.
Inflation serves as a gauge of price increases, indicating how the purchasing power of money changes over time. A lower inflation rate does not imply that prices have stagnated but rather that they are rising at a slower pace.
The ONS calculates inflation based on a basket of goods and services regularly updated to reflect consumer spending patterns. The headline inflation figure represents an average, meaning individual prices may vary from this benchmark.
The Bank of England targets a 2% inflation rate, adjusting interest rates to influence borrowing costs and consumer spending. Higher interest rates can constrain spending, leading to reduced demand and subsequently lower inflation rates.
While the base rate reached a peak of 5.25% in August 2023, subsequent cuts have lowered it to the current level of 4%. Inflation surged to 11.1% in October 2022 due to increased energy and food costs but has since fluctuated.
Post-Covid energy demands and geopolitical events, such as the conflict in Ukraine, have exacerbated inflation by driving up energy and food prices. Despite a temporary drop to 1.7% in September 2024, inflation has shown a resurgence in recent months.