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UK inflation falls to 4.6% as cost of living squeeze eases

UK inflation A shopper carries a basket in a supermarket in London, Britain April 11, 2017. British inflation shot past the Bank of England's 2 percent target last month, potentially adding to uneasiness among some officials at the central bank about keeping interest rates near zero. Consumer prices rose by a stronger-than-expected 2.3 percent, the biggest annual increase in nearly three-and-a-half years, pushed up by an increase in global oil prices and the impact of the Brexit vote on sterling. REUTERS/Neil Hall
UK inflation has fallen sharply but food price increases remain in the double digits. Photo: Neil Hall/Reuters (Neil Hall / reuters)

UK inflation has dropped to a two year low of 4.6% in October on the back of falling gas and electricity prices, boosting hopes for interest rate cuts by the summer.

The UK’s consumer prices index (CPI) index has dropped to 4.6% in October, down from 6.7% in September. It is the lowest rate of price increases in two years and the bigger than expected fall should provide some relief to UK households gripped by the cost of living crisis.

Alice Haine, personal finance analyst at investment platform Bestinvest, said: "Softening inflation is positive news for households as it means incomes might be less stretched than they have been, but a decline in the headline rate does not mean prices are reducing, just that they are rising less quickly compared to previous months."


The inflation figure dropped dramatically after the latest energy regulator Ofgem price cap came into effect, limiting typical household energy bills to £1,834.

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Grant Fitzner, chief economist at the ONS, said: "Inflation fell substantially on the month as last year's steep rise in energy costs has been followed by a small reduction in the energy price cap this year."

The pace of price rises for food and non-alcoholic beverages also fell sharply in October, but was still in double-digits.

The annual inflation rate for food and non-alcoholic beverages dropped to 10.1% in October 2023, down from 12.2% in September.

That’s an improvement on the recent high of 19.2% hit in March 2023, which was the highest annual rate seen for over 45 years.

Core CPI, which strips out energy, food, alcohol and tobacco, rose by 5.7% in the 12 months to October, down from 6.1% in September.

The prime minister pledged at the start of the year to halve inflation to below 5.4% by the end of 2023. Inflation was at 10.7% in the three-month period between October and December 2022.

Rishi Sunak said: “In January I made halving inflation this year my top priority. I did that because it is, without a doubt, the best way to ease the cost of living and give families financial security.

“Today, we have delivered on that pledge.”

Read more: UK wages grow faster than inflation

The latest inflation data is below the Bank of England’s prediction that inflation would fall to 4.8% in October.

Lower inflation could give policymakers at the Bank of England the confidence to hold interest rates at 5.25% or even cut them.

Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales (ICAEW), said: "This fall in inflation seals the deal on a December interest rate hold and may drive a three-way voting split among rate setters with a member voting for a rate cut as concerns over a flatlining economy grow.

Investors are now expecting the Bank of England to start cutting interest rates in May 2024.

Bruna Skarica, UK economist at Morgan Stanley, said in a note to clients: "As we had expected, October brought another leg lower in core goods inflation, as used cars prices collapsed. But services inflation – and all the core metrics we track – were soft as well.

"The economy is weak, and firms’ pricing is waning.On top of all this came sizeable base effects from energy. The UK no longer looks like such a major outlier when it comes to inflation. We see the print as supportive of our call of BoE cuts next year, from May."

Read more: Interest rates - No more rises needed to tackle inflation, says BoE chief economist

The Bank of England’s governor, Andrew Bailey, however, has said it was "much too early to be thinking about rate cuts".

He added: "We'll be watching closely to see if further rate increases are needed."

Chancellor Jeremy Hunt has said the government would back the Bank of England’s “difficult decisions” on using interest rates to further lower inflation.

He told broadcasters: “The Government has a very important role in bringing down inflation, because we are responsible for the whole fiscal context – a year ago, markets were worried that borrowing and debt were out of control.

“We took difficult decisions to bring that borrowing and debt down. As a result of that, we made it easier for the Bank of England to do their job.

“But we will continue to support them with the difficult decisions that they take on interest rates, because the job is not yet done.”

Watch: Inflation tumbles to two-year low of 4.6% as energy costs ease

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