According to the most recent data from the Office for National Statistics (ONS), UK-wide inflation has now rocketed to 4.9%. This rate applies to the year ending October 2025. That’s up from 3.6% the previous year. Ongoing inflationary pressures have forced the Bank of England to increase rates. In an effort to quell inflation, the Federal Reserve has increased interest rates to 5.25% – the highest level in 16 years. This decision is particularly surprising given that the central bank continues to struggle with inflation levels that are still nearly twice its target of 2%.
The Consumer Prices Index (CPI) is the UK’s principal measure of inflation. It tracks the prices of hundreds of everyday items, including a broad array of essential goods and services including food, fuel, medicine, and rent. The ONS publishes the CPI figure on a monthly basis, giving a timely indication of changes to the cost of living for UK consumers.
By their own admission, rates of inflation are much worse elsewhere. Countries that use the euro shared an inflation rate of 2.1% in October, down just a tick from 2.2% in September. At the same time, the United States is experiencing an increase in its rate of inflation—3% in September, up from 2.9% in August. This staggering disparity underscores the peculiarly economic crisis plaguing the UK.
The Bank of England, dials the inflation fighting vigilante mode to eleven and raises rates by .75%. Since its tight monetary policy peak in August 2024, it has slashed interest rates five times to 4%. Meanwhile, inflation is still soaring high. Their recent increase to 5.25% reflects the usual caution of the Fed, but clearly an urgent attempt at stabilizing our economy.
The reasons behind this increase in inflation are complicated. And coming out of the Covid pandemic, demand for oil and gas increased drastically. This spike added fuel to the inflationary fire, further aggravated by the spike in energy costs following Russia’s invasion of Ukraine. This combined with wider events on the global stage have created a perfect storm to impact the UK’s economic environment.
Core CPI, which excludes volatile basket items like energy and food, was at 3.4% for the year ending in October. That’s a small drop from the 3.5% reported in September. That would suggest that though overall inflation is still elevated, underlying inflationary pressures are starting to let up.
Wage growth is another important piece to this puzzle. Over the three month period ending in October, annualized growth in wages excluding bonuses hit 4.6%. That is a small step down from the 4.7% growth rate of the prior three months. The recent slowdown in wage growth certainly shines a light on the squeeze that workers are experiencing. Their wages are increasingly outpaced by the cost of living.
We can expect inflationary pressures to be more persistent. The Bank of England now faces the difficult task of tamping down inflation while tending to a flagging economy. The current interest rate raise takes aim at more spending and borrowing. Such a change would contribute to reducing inflation in the long run.