UK inflation was 3.6% in October, elevating the probability of a charge minimize in December

Regent Street in London celebrates the Christmas season on November 13, 2025 in London, England.

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According to the latest data from the Office for National Statistics, the UK inflation rate fell to 3.6% in October.

Economists polled by Reuters had expected a rate of 3.6% for the 12 months through October, compared with 3.8% in September.

Core inflation excluding energy, food, alcohol and tobacco rose 3.4% in the year to October, compared with 3.5% in September.

“Inflation eased in October, driven mainly by gas and electricity prices, which rose less sharply than this time last year due to changes to the Ofgem energy price cap. Hotel costs were also a downward driver, with prices falling this month,” ONS chief economist Grant Fitzner commented on Wednesday.

This downward pressure was only partially offset by rising food prices after the September slump, while annual raw material costs for companies continued to rise.

Budget, then Christmas cuts

The Bank of England had previously forecast inflation would peak at 4% in September – twice the central bank’s target – before gradually cooling next year.

Economists expect the central bank to cut interest rates at its next meeting in December as inflation cools and growth remains stubbornly low. Britain’s economy grew a meager 0.1% in the third quarter, preliminary figures released last week showed.

However, all eyes are currently on the UK Treasury’s autumn budget, due to be announced on November 26, and analysts are keen to gauge the extent of expected tax rises that could have a disinflationary effect.

“Looking ahead, the autumn budget is likely to be the next most significant update to the inflation forecast. Speculation about lower energy bills, indexation costs, tariffs and food prices remains widespread,” said Sanjay Raja, chief UK economist at Deutsche Bank, in analysis ahead of the inflation data.

“We are waiting for the Chancellor [Rachel Reeves] to implement some modest measures to reduce prices by November 26th. “That will give us a good sense of where inflation will end up in 2026,” he said.

Relief for Reeves

According to Brad Holland, director of investment strategy at JP Morgan Personal Investing, the latest inflation numbers will provide “much-needed positive relief” for Rachel Reeves.

“While a slowdown in price increases will be welcome news for many – not least all British consumers preparing for their festive spending – the economic situation in the UK remains mixed,” he said in emailed comments.

Holland said the latest inflation data would likely push the central bank into a pre-Christmas interest rate cut at its Dec. 18 meeting.

“With the latest data coming on the heels of last week’s weak growth numbers, calls for action are growing louder by the day. Markets are pricing in an 80% chance of a 0.25% rate cut in December and the data suggests the time is probably now,” he said.

Chancellor Rachel Reeves poses with the red box in front of No. 11 Downing Street on October 30, 2024 in London, England. This is the first budget presented by the new Labor government and Finance Minister Rachel Reeves.

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George Brown, senior economist at Schroders, said that while recent data tipped the balance in favor of a rate cut in December, any further rate cuts would largely depend on the contents of the Chancellor’s red box.

“If VAT and environmental charges are removed from household energy bills, inflation could fall by up to half a percentage point,” he said in emailed comments.

“But we remain concerned that overall price pressures will prove persistent. Wage growth is still well above target, particularly given repeated weak productivity.” The Bank [of England] Given the increased risk of high inflation becoming entrenched, caution must be exercised.”