Inflation drop will raise hopes of December interest rate cutpublished at 08:57 GMT

08:57 GMT

Ben King
Business reporter

The Bank of England held interest rates at 4% in November, bringing a cycle of regular quarter-point cuts every three months to an end.

But today's news of a fall in inflation in October - to 3.6% - will raise hopes that the Bank might cut interest rates in December.

In particular the rise in the price of services, at 4.5%, was smaller than expected. This is a closely-watched measure of underlying inflationary pressure in the economy, and this will boost the case for a cut.

But there's lots still to happen before we get that decision on 18 December - not least the Budget next week.

We're ending our live coverage now - you can read more in our story.

Michael Race
Business and economics reporter

Chancellor Rachel Reeves said in a recent speech that measures in the Budget next will be focused on "getting inflation falling and creating the conditions for interest rate cuts".

One such measure the BBC understands the government is considering cutting is the current 5% rate of VAT charged on energy bills.

Another option on the table is to reduce some of the regulatory levies currently added to bills.

The boss of British Gas, Chris O'Shea, recently told me he would welcome "anything that reduces the cost of energy", but cautioned "the reality is we have got to pay for it in some way".

"If you take VAT off heating bills you are going to have a gap in the public finances, how do you plug that gap and who plugs the gap?

"If you are just playing with the same pot of money, whether it's an energy bill-payer or it's a taxpayer, they are the same people. The question is how do we get growth."

Michael Race
Business and economics reporter

You could be forgiven for being anxious by spikes in inflation in recent years. Prices surging in the aftermath of Covid and Russia's invasion of Ukraine, for example, live long in the memory.

Wages have increased, on average, over time - but whether or not you feel better off will depend on your individual financial situation.

In a recent report, the Bank of England said across the country "concerns about rising food costs and utility bills still dominate conversations".

"Households continue to change their shopping habits to reduce spending, such as buying more vegetables and reducing meat consumption," it said.

I asked policymakers at the previous interest rate decision meeting if people were somewhat scarred by the inflation shocks, and that was having an impact on the wider economy - such as consumer spending and investment.

They confirmed it is something on their minds. And it is shown through their feedback around consumer spending remaining "cautious, focused on value".

How people and businesses feel about their finances and what they expect to happen in the future can have a big impact on the economy and growth - the government's main goal.

Michael Race
Business and economics reporter

The drop in the UK's inflation rate backs up the prediction by the Bank of England, which sets interest rates, that inflation has peaked.

The Bank narrowly voted to hold interest rates at 4% at its meeting two weeks ago, with its boss saying policymakers needed to see more evidence that inflation was on the way down before cutting.

The theory behind increasing interest rates to tackle inflation is that by making borrowing money more expensive, more people will cut back on spending and that leads to demand for goods falling and price rises easing.

But it is a balancing act, as high interest rates can harm the economy as businesses hold off from investing in production and jobs.

Today's inflation figure means that a pre-Christmas rate cut could well be on the cards, though the Bank will be closely watching the tax and spending policies announced in the Budget - and the fallout from that - next week.

The Bank has repeatedly said it thinks the path for interest rates is gradually downwards.

It's important to note though, that inflation at 3.6% is still a long way above the Bank's 2% target.

Image source, Reuters

Prime Minister Keir Starmer has posted a brief statement on X, welcoming the drop in inflation and echoing the chancellor's message that there is "more to do".

"This is welcome news, but I know families across the country are still struggling with the cost of living," he writes.

"My government is carrying on with the work of tackling the cost of living and making families better off," he adds.

Image source, Mike Kemp/In Pictures via Getty Images

In case you're just joining us, here's what you need to know:

• The UK's inflation rate has fallen to 3.6% in the year to October, according to new figures released by the Office for National Statistics (ONS)
• While that may be well above the Bank of England's 2% target, the rate has fallen for the first time since March
• The drop was mainly driven by slower rises in energy prices, but the rate at which food costs are rising is increasing
• While the rate has fallen, many won't feel it on their shopping bill, writes our business reporter Michael Race
• Chancellor Rachel Reeves has welcomed the drop, but admitted "there is more we need to do"
• Meanwhile, shadow chancellor Mel Stride has accused the government of "stoking" inflation in their previous Budget

Image source, PA Media

Liberal Democrats deputy leader Daisy Cooper says her party wants to see the government put "households and high streets first" and warns against any "stealth tax" in the upcoming Budget.

“As the cost-of-living crisis rages on, the chancellor mustn’t look this small gift horse in the mouth," she says of today's inflation rate drop.

She calls for "emergency measures to slash people’s energy bills" and a VAT cut for hospitality to "save our high streets" - which she says could be paid for by "taxing the banks".

Image source, PA Media

Shadow chancellor Mel Stride accuses the government of "stoking" inflation, and calls for spending cuts in next week's Budget.

The Conservative MP writes in a post on social media: "Inflation has been above target every single month since Labour's last Budget, leaving working people worse off.

"Labour hiked borrowing and taxes, stoking the inflation now hitting families.

"If Labour had any backbone, they would adopt our £47bn savings plan and our Golden Economic Rule next week to ease inflationary pressures."

Chancellor Rachel Reeves says the drop in inflation rate is "welcome".

"I recognise that inflation and the cost of living is still a big burden on families right across country," she says, speaking to broadcasters.

The chancellor vows to announce "targeted action" to bring down inflation in next week's Autumn Budget.

"I do recognise there is more we need to do," she adds.

More now from Grant Fitzner, chief economist at the Office for National Statistics (ONS).

Speaking to BBC Radio 4's Today programme about rising food prices, he says the sector has seen less profitability in the last few years.

"We're seeing some attempt to rebuild some of those margins, but that's quite gradual," he says.

On why UK inflation may be more stubborn than some of the country's European counterparts, he puts it down to multiple factors - such as reliance on gas as an energy source, the minimum wage, and regulatory costs.

Michael Race
Business and economics reporter

While a drop in the UK's inflation rate will be welcomed, food prices rising at pace will continue to put pressure on the budgets of many households.

In the year to October, food prices rose, on average, by 4.9%. Today it's been confirmed the rate has increased, after a dip in September.

The ONS says prices of bread, cereals, fish, potatoes and sugar have all increased by varying levels.

When people are asked about the cost of living, food - and energy bills - is at the top of list. So while the overall inflation rate has fallen, many won't feel it on their shopping bill.

As we've been reporting, the UK's inflation rate has fallen to 3.6% in the year to October, according to the Office for National Statistics.

It's the first drop since March, and the lowest the rate has been since the year to June - when the rate was also 3.6%.

But it remains well above the Bank of England's 2% target.

And as a reminder, inflation measures the rate of price increases. So although the rate of inflation has dropped, prices are still rising, just more slowly.

Michael Race
Business and economics reporter

As we've just been reporting, energy prices rising at a slower rate this October, compared to the same month a year before, were behind the drop in the UK's inflation rate from 3.8% to 3.6%, according to the ONS.

But while the inflation rate has fallen, it doesn't mean all goods are getting cheaper - it's just that prices are rising, on average, at a slower rate.

Food price inflation, for example, increased last month, with prices on average 4.9% more expensive than they were in October last year.

Chief economist at the Office for National Statistics (ONS), Grant Fitzner, says the easing in inflation was "driven mainly by gas and electricity prices, which increased less than this time last year following changes in the Ofgem energy price cap".

He adds: "The costs of hotels was also a downward driver, with prices falling this month.

"These were only partially offset by rising food prices, following the dip seen in September.

"The annual cost of raw materials for businesses continued to increase, while factory gate prices also rose."

The UK inflation rate falls to 3.6% in the year to October, the Office for National Statistics says.

Stay with us as we bring you analysis and reaction to this shortly.

Expect a move in the right directionpublished at 06:44 GMT

06:44 GMT

Dharshini David
Deputy economics editor

After a rocky few years, today's figures are likely to reveal inflation slipped last month, with prices rising more slowly.

That's likely to reflect a smaller rise in energy bills this autumn than last year. Even so, inflation will have remained above the Bank of England's 2% target - and has been notably persistent compared to that in many other major economies.

That in part reflects the impact of the government's policies.

The increase in employers' National Insurance and minimum wages have substantially pushed up costs for employers that rely heavily on labour - for example retail and hospitality. Inflation across services is likely to have remained higher, and to be falling more slowly.

It is the stubborn nature of inflation that has made the Bank of England hesitant to cut rates - but if it is moving in the right direction at least, it may be tempted to act in December.

The chancellor has also pledged help to ease the cost of living burden in next week's Budget - for example, relief on energy bills - that too may sway the Bank's decision.

Tommy Lumby
Business data journalist

Before we get the latest inflation figures this morning, the chart below provides a bit of context.

Prices across the UK economy rose by an average of 3.8% in the year to September.

That’s almost twice the Bank of England’s target of 2% - which the Bank considers a stable pace of increase - but it was also below the 4% that many economists had predicted.

If we see the annual rate drop to 3.5% for October, as predicted by some economists, that will be the lowest it has been since May.

Inflation measures how quickly the prices of goods and services are rising.

If the inflation rate is low, then prices are only rising slowly. If the rate is high, you might notice the price of things you buy going up when you shop.

If the rate of inflation falls, that doesn’t mean prices are falling; it means that prices are increasing at a slower rate.

Here’s an example: if a bottle of milk cost £1 in September 2024, but costs £1.05 in September 2025, then the annual inflation rate for milk is 5%.

If the rate was 2%, then the bottle of milk would cost £1.02 - still more than a year ago.

The Office for National Statistics tracks the prices of hundreds of items, from regular supermarket goods and fuel to travel costs and home furnishings.

It uses that “basket of goods” to update the main rate of inflation, the Consumer Prices Index, each month.

Image source, EPA

Within the next hour the latest data on the UK inflation rate - which tells the pace of overall price rises in the UK - is going to be released.

Economists are expecting a slight drop from 3.8% in the year to September, to 3.5% in the year to October.

If that happens it would put the inflation rate at its lowest rate in five months - but still above the Bank of England’s target of 2%.

The Office for National Statistics will publish the latest data at 07:00 GMT, and we’ll bring you updates as well as analysis from our experts on what it means for you.