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The annual inflation rate in the UK dropped to 3.6% in October, marking the slowest increase in prices over the past four months. This reduction was influenced by smaller year-on-year rises in household energy and hotel costs, according to data from the Office for National Statistics (ONS). Food prices, however, continued to climb after a brief decline in September. Economists had predicted a more significant decrease to 3.5%, but the actual figure slightly exceeded expectations. This inflation update comes just days before the government is set to unveil its Budget.
Chancellor Rachel Reeves responded to the latest inflation figures by expressing her commitment to easing the burden of rising prices on families across the UK. She acknowledged the ongoing challenges posed by inflation and the cost of living, emphasizing that addressing these pressures is a key focus of the upcoming Budget. The plan is anticipated to consist of a combination of tax increases and spending reductions aimed at stabilizing government finances.
The most significant upward pressure on prices was driven by food and non-alcoholic beverages, with inflation in this category rising to 4.9% in October from 4.5% the previous month. Notable increases were reported for staples such as bread, meat, fish, vegetables, and confectionery, while fruit prices declined slightly. The overall slowdown in inflation has sparked optimism that the peak has passed, potentially paving the way for future cuts in interest rates. Despite this, inflation remains above the Bank of England’s 2% target, and the central bank’s forthcoming interest rate decision will consider the longer-term effects of borrowing costs.
ONS chief economist Grant Fitzner noted that the easing of inflation in October was largely due to a smaller rise in gas and electricity prices compared to last year, influenced by changes to the Ofgem energy price cap. Household energy prices did increase in the past year, but the 2% rise was modest compared to the previous year’s 9.6% hike. Additionally, hotel prices fell more significantly than usual ahead of the Christmas period. Nonetheless, fuel costs rose, impacting both motorists and delivery expenses. Fitzner also pointed to rising raw material and factory gate prices as ongoing cost pressures. The Food and Drink Federation attributed food price inflation to higher ingredient and energy costs, alongside regulatory expenses such as packaging taxes and increased National Insurance contributions.
Sarah Coles from Hargreaves Lansdown remarked on the public relief following the news of lower inflation, noting its potential benefits for borrowers, including mortgage holders, if interest rates are reduced. The Bank of England has kept rates elevated to control inflation, choosing to hold its base rate steady at 4% during its November meeting after months of persistent inflation around 3.8%. Lower interest rates are expected to support economic growth, which aligns with Chancellor Reeves’ priorities. Rob Wood, chief UK economist at Pantheon Macroeconomics, expressed confidence that a rate cut in December is essentially certain, though he foresees a prolonged pause before any further reductions.
Looking ahead, the Bank of England is closely monitoring core inflation—which excludes volatile food and energy prices—and services inflation to gauge future price trends. Both indices showed signs of easing in October, fostering hope that inflation may now be declining. The Bank previously indicated that inflation likely peaked in September, falling short of an earlier projections of a 4% high. Future inflation trends will depend on various dynamic factors, including energy and commodity costs influenced by global events and climate change. The Budget’s policies could also impact inflation; for example, speculation includes possible tax cuts on energy bills as well as spending cuts or tax hikes, which may have deflationary effects. Shadow Chancellor Sir Mel Stride criticized the persistent inflation since Labour’s last Budget, highlighting its toll on working people’s finances. Meanwhile, Liberal Democrat deputy leader Daisy Cooper urged decisive action to reduce energy bills and called for a VAT cut to support the hospitality sector
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