- UK Inflation cooled to 3.6% in October, the first decline in five months.
- Markets now expect the Bank of England to consider rate cuts in early 2025, easing pressure on mortgage holders.
- The UK’s inflation path is now more closely aligned with major EU economies.
UK Inflation eased to 3.6% in October, marking its first fall in five months and offering long-awaited relief to households and policymakers navigating a fragile economic environment.
New data from the Office for National Statistics indicated that price pressures have begun to cool again after months of stagnation, raising fresh questions about the Bank of England’s interest rate strategy for the coming year.
Signs of a Slowdown: What’s Behind the UK’s Inflation Drop?
The ONS attributed the decline largely to a slower rise in energy bills following Ofgem’s latest price cap adjustment. The 2% increase introduced in October was modest compared with the 9.6% jump recorded a year earlier, significantly reducing upward pressure on the Consumer Price Index.
Furthermore, hotel and accommodation costs also contributed to the fall, with prices dropping 2.2% month-on-month, a much steeper seasonal decline than the 0.2% fall recorded last year.
How Falling Inflation Could Reshape Mortgage Costs
ONS chief economist Grant Fitzner said the easing reflected “gas and electricity prices increasing less than this time last year,” while hotels saw sharper reductions, further pulling down headline inflation.
However, the moderation was partially offset by food inflation, which remains elevated at 4.9%, with categories such as bread and cereals contributing to renewed upward pressure.
Core inflation, which excludes volatile food and energy components, trickled down from 3.5% to 3.4%, while services inflation, a key metric for the Bank of England, eased from 4.7% to 4.5%, as reported by Yahoo News.
Is a 2025 Rate Cut Finally on the Table?
The drop in UK Inflation has renewed speculation that the Bank of England may move towards its first interest-rate cut as early as the first quarter of 2025. With price pressures softening and economic momentum slowing, financial markets are increasingly betting that policymakers will begin easing monetary conditions next year.
Any move towards rate cuts would be particularly significant for mortgage holders. Over the past two years, rising interest rates have driven mortgage costs to their highest levels in more than a decade, squeezing disposable incomes nationwide.
If inflation continues this downward trajectory, lenders are expected to reduce fixed-rate mortgage offerings in early to mid-2025, bringing meaningful relief to homeowners and first-time buyers.
Economists say the BoE’s decision will depend on how sustained the drop in inflation proves to be, especially in areas such as services and wages
UK vs EU: Where Britain Stands on Inflation
The easing in UK Inflation also brings the country closer to the inflation rates now seen across major EU economies. Eurozone inflation has recently settled near 2.9%, with Germany and France experiencing similar downward trends as energy markets stabilise and supply chain disruptions fade.
This alignment marks a shift from 2022 and early 2023, when UK Inflation consistently outpaced the European Union, due to stronger wage growth and a heavier reliance on natural gas imports. The current convergence suggests that the UK may soon follow a similar monetary policy path to the European Central Bank, which is also expected to begin easing rates in 2025 if inflation continues to cool across the bloc.
The narrowing gap could reduce economic divergence between the UK and the EU, potentially stabilising trade flows and investor confidence after two years of heightened volatility.
Political and Fiscal Response Ahead of the Budget
Chancellor Rachel Reeves welcomed the easing, calling it “good news for households and businesses,” while stressing that next week’s budget will be guided by “fair choices” that do not risk reigniting inflation. Reeves said her priorities include reducing NHS waiting lists, lowering national debt and addressing the cost-of-living burden.
The Bank of England has signalled that it remains data-dependent. Still with inflation cooling and economic activity slowing, policymakers are under increasing pressure to shift towards growth-supporting measures in 2025.
