UK Inflation Eases to 3.6% in October, Boosting Rate Cut Hopes

Inflation Finally Shows Some Softening

The UK’s year-on-year inflation rate dropped to 3.6% in October 2025, marking the first decline in five months. The fall was led by slower growth in energy and hotel prices, even though food inflation remains elevated at 4.9%. The Guardian+1
This reading sits above the Bank of England’s long-term target of 2%, but it signals that inflationary pressures may be starting to ease.

Why the Drop Matters

For markets and policymakers alike, the decline in inflation:

• Strengthens expectations that the Bank of England could cut interest rates possibly in December. The Guardian

• Helps relieve some cost-of-living pressure for households, though core inflation remains a concern.

• Suggests that the long stretch of elevated inflation may be turning a corner, allowing more flexibility in monetary policy.

Still Some Risks Remain

Despite the encouraging drop, several caution flags remain:

• Food inflation remains relatively high at 4.9%, which continues to impact households. The Guardian

• The inflation target of 2% is still distant, so the Bank of England must be wary of prematurely easing policy.

• Global and domestic economic uncertainties — including geopolitical risks, energy price swings, and labour market tightness — could reverse progress.

What to Watch Next

• The upcoming UK government budget and any announcements on tax or energy subsidies could further affect inflation and consumer spending.

• Watch for the Bank of England’s next meeting: if inflation continues to drift lower, markets may increasingly price in a rate cut.

• Consumer confidence and wage growth will remain important indicators to understand whether reduced inflation translates into real-income gains.

Bottom Line

While the new 3.6% inflation figure offers a positive sign that price growth is beginning to slow in the UK, it’s not time for full celebration. The Bank of England is likely to proceed with caution, balancing the desire to ease rates with the need to anchor inflation expectations. If the trend continues, households could start to see some relief in borrowing costs and living expenses over the coming months.