In October, UK households received a positive cost of living boost as inflation decreased to 3.6%, down from 3.8% in the preceding three months. This drop, the first since March, brought inflation back to its lowest level since June. Despite the decline, the decrease was slightly less than the anticipated 3.5%, keeping inflation above the Bank of England’s 2% target.
The Office for National Statistics (ONS) attributed the decrease in inflation to lower energy bills, primarily driven by smaller increases in gas and electricity costs compared to the previous year. Energy bills rose by 2% in October 2025, a significant drop from the 9.6% increase seen in October 2024. Additionally, reduced hotel prices contributed to lowering inflation. However, rising food prices offset some of these declines, with food inflation climbing from 4.5% to 4.9% in October.
This inflation update precedes the Autumn Budget, where Chancellor Rachel Reeves aims to create space for the Bank of England to potentially reduce interest rates by addressing inflation. Grant Fitzner, the ONS’s chief economist, noted that the easing inflation was mainly driven by milder increases in energy prices and declining hotel costs, although food prices rose following a dip in September.
Chancellor Rachel Reeves expressed satisfaction with the inflation decrease, emphasizing her commitment to further reducing prices. She pledged to make fair choices in the upcoming Budget to address public priorities, including cutting NHS waiting lists, national debt, and the cost of living.
Inflation, a measure of price increases, impacts the purchasing power of consumers. The ONS calculates inflation based on a basket of goods and services regularly bought by households. While headline inflation figures provide an average, individual prices may vary from this average.
The Bank of England targets 2% inflation and adjusts interest rates to manage inflation levels. Higher interest rates can constrain spending, leading to reduced demand and lower inflation. The Bank had raised interest rates over nearly two years to combat rising inflation, which peaked at 11.1% in October 2022 due to escalating energy and food costs.
Following inflation’s decline to 1.7% in September 2024, the rate began to rise again in October, indicating ongoing fluctuations in the economy.