UK inflation eases as housing costs pull headline rate lower

UK inflation slowed in October as the headline Consumer Prices Index (CPI) fell to 3.6% in the 12 months to October 2025, down from 3.8% in September, offering a modest but timely boost for households and policymakers ahead of next week’s Autumn Budget.

The Office for National Statistics (ONS) said the easing was driven largely by weaker housing and energy-related costs, with gas and electricity prices rising far less sharply than they did a year ago following changes to the Ofgem price cap. On a monthly basis, CPI rose by 0.4%, compared with a 0.6% increase in October 2024.

While food and non-alcoholic drinks continued to exert upward pressure on prices, the overall slowdown suggests that inflationary forces are continuing to soften. Core CPI, which strips out the more volatile categories of energy, food, alcohol and tobacco, also edged down, slipping from 3.5% in September to 3.4% in October.

For the government, the latest figures will be welcome. Inflation remains above the Bank of England’s 2% target, but the downward trend strengthens hopes that interest rate cuts could be nearing, and offers an improved economic backdrop as the Chancellor prepares to deliver the Budget.

Neil Rudge, Chief Banking Officer for Commercial at Shawbrook, said the fall to 3.6% “gives consumers and businesses some respite ahead of seasonal celebrations” and provides “good news for the Government” this close to the Budget.

But he argued that businesses are still being squeezed on multiple fronts. “Rachel Reeves is playing a game of tug-of-war with British businesses, championing them for investment while simultaneously making it more expensive for many to operate – with last year’s decision to raise NICs proving especially damaging,” he said.

Rudge added that despite improving conditions, SMEs continue to tread carefully. “Some businesses will understandably be holding back for the time being, while others will be implementing their growth plans regardless of the macro-environment. No matter where a business lands on that, external finance remains a pivotal part of the puzzle.”

George Lagarias, Chief Economist at Forvis Mazars, said the slowdown was expected and brings the Bank of England “that much closer to a December rate cut.”

He added: “Growth can’t ignore the trade war and inflation can’t ignore gravity. All sub-components, factory input and output prices as well as inflation came in lower than expected. Given the slowdown in the housing market, it becomes more imperative for The Bank of England to act sooner rather than later.”