The UK inflation rate dropped down to 3.6% in the 12 months up to October. That’s a stunning drop from the 11.1% rate last year. This slowdown in inflation provides at least some relief to consumers as the entire nation continues to face escalating costs. The Office for National Statistics (ONS) announced that inflation is at its lowest rate in four months. This increase largely reflects rising household energy expenditures being smaller than previously expected and falling costs for lodging away from home.
We know from engagement with her team that Chancellor Rachel Reeves is really serious about leading on inflation. She has committed to easing the cost of living squeeze on families. She reiterated reducing cost of living pressures was the most pressing issue for this year’s Budget. As such, it is likely to contain a mix of tax hikes and reduced spending.
Grant Fitzner, chief economist at the ONS said, Inflation made a small easing in October. This fall was primarily driven by gas and electricity inflation, which rose at a much reduced rate compared to last year due to the effects of changes in the Ofgem energy price cap.
“Inflation eased in October, driven mainly by gas and electricity prices, which increased less than this time last year, following changes in the Ofgem energy price cap,” – Grant Fitzner
Increases in prices of food have continued, though at a modest pace, even as the rate of inflation overall has declined sharply. Food’s 12-month inflation rate hit 4.9% in October after having a drop in the month of September. Staple foods like bread, meat, fish, and vegetables were among the most affected with significant price hikes, as well as chocolate and other confectionary.
The hotel industry further fanned the inflation trend, with rates that usually fall between the summer and Christmas seasons. This year’s cut, while larger in dollars, was deeper in percentage terms than last year. Economists were expecting a bigger drop, with forecasts of a decline from September’s 3.8% to 3.5%.
Rob Wood, chief UK economist at Pantheon Macroeconomics, noted the monetary policy implications of such developments. Most significantly, he predicted that a cut in interest rates is at least several months away, start of a new and more positive economic cycle.
Liberal Democrat transport spokesperson, Daisy Cooper, warned against jumping to conclusions based on the new numbers. She added that while the drop is good news, it should not be seen without caution.
“We mustn’t look this small gift horse in the mouth,” – Daisy Cooper
While inflation’s impact has created a new reality — one that is eroding household budgets — consumers remain cautious but cautiously optimistic. Sarah Coles captured this humor and sentiment beautifully and hit home with the sigh of relief from the entire country.
“If you’re wondering what that warm breeze is, it’s the entire country heaving a sigh of relief at the news that inflation has fallen for the first time since March,” – Sarah Coles