In October, UK households received a positive boost as inflation decreased to 3.6%, down from the 3.8% recorded in the previous three months. This drop, the first since March, brought inflation back to its lowest level since June. Despite this decline, the decrease was not as significant as anticipated, with most economists forecasting a drop to 3.5%. Additionally, inflation remains above the Bank of England’s 2% target.
The Office for National Statistics (ONS) attributed the decrease in inflation to lower energy bills in October, as gas and electricity costs rose less compared to the previous year. Energy bills increased by 2% following an adjustment in the Ofgem price cap, significantly lower than the 9.6% surge seen in October 2024. Decreased hotel prices also contributed to the decline in inflation. However, rising food prices partially offset these reductions, with food inflation climbing from 4.5% to 4.9% in October.
This update on inflation precedes the Autumn Budget, where Chancellor Rachel Reeves aims to create room for potential interest rate cuts by reducing inflation further. Grant Fitzner, the chief economist at the ONS, highlighted that the easing of inflation in October was primarily driven by lower energy prices and reduced hotel costs.
Chancellor Rachel Reeves expressed optimism about the decrease in inflation, emphasizing her commitment to further lowering prices. She emphasized the importance of making fair choices to address public priorities, including reducing NHS waiting lists, national debt, and the overall cost of living.
Inflation is a measure of price increases, indicating how the value of money changes over time. The ONS calculates inflation based on a basket of goods and services that represent typical consumer purchases. While the headline inflation figure provides an average, individual prices may vary from this overall rate.
The Bank of England targets a 2% inflation rate and adjusts interest rates to manage inflation levels. By increasing interest rates, borrowing becomes more expensive, reducing consumer spending and lowering demand, which can help control inflation. However, higher interest rates can strain household finances, as seen with recent adjustments from a peak of 5.25% in August 2023 to the current rate of 4%.
Inflation rose steadily in 2021, peaking at 11.1% in October 2022 due to increased energy and food costs. Factors such as heightened energy demand post-Covid and disruptions from the Ukraine conflict led to price escalations. While inflation reached a three-year low of 1.7% in September 2024, it began to rise again in October.
For more money-saving tips and offers, subscribe to the Mirror Money newsletter.