Inflation fell for the first time in four months in October to sit at 3.6 per cent.
The Consumer Prices Index (CPI) has steadily risen over the last year and has stubbornly stayed at almost double the Bank of England’s 2 per cent target.
After months of ‘sticky’ inflation readings, a fall in the headline rate is welcome news, although prices are still increasing by more than they should.
October’s headline inflation rate is at June 2025 levels, with core inflation falling marginally to 3.4 per cent, while services inflation fell from 4.7 per cent to 4.5 per cent.
What do the latest inflation figures mean for you, where does this leave the Bank of England on interest rate hikes, and will inflation stay at a higher rate? We look at all this and more.
Weekly shop: High inflation has hit our household bills in recent years, from energy to food
What’s the latest on inflation?
The headline inflation rate, at 3.6 per cent, is at its lowest level since June 2025, but is still much higher than where it was in October 2024 (2.3 per cent).
Core inflation – which excludes volatile items like food, energy and alcohol – rose by 3.4 per cent in the 12 months to September 2025, down from 3.5 per cent in the year to August, while services inflation fell from 4.7 per cent to 4.5 per cent in October.
Housing and household services made the largest downward contribution to CPI, dropping from 7.3 per cent to 5.2 per cent. Health costs also fell from 3.5 per cent to 2.7 per cent.
But food prices came in much higher again, rising from 4.5 per cent in September, to 4.9 per cent.
Five categories saw inflation in double digits: beef and veal (27 per cent), chocolate (17.5 per cent), whole milk (15.5 per cent), butter (14.3 per cent) and coffee (14.2 per cent).
Prices fell the fastest for: olive oil (-15.4 per cent), flours (-6.2 per cent), sugar (-3.7 per cent), rice (-2.4 per cent) and frozen seafood (-2.3 per cent).
Karen Betts, Chief Executive, The Food and Drink Federation (FDF) said: ‘Food and drink manufacturers are paying nearly 40 per cent more for ingredients and energy than they were in January 2020, as well as bearing a range of newer regulatory costs, like new packaging taxes and increases to employer national insurance.
‘Hard-pressed food and drink companies are finding they simply have no choice but to increase prices.’
What does the inflation rate mean for you?
Consumer prices inflation, known as CPI, measures the average change in the cost of consumer goods and services purchased in Britain, with the ONS monitoring a basket of goods representative of UK consumers.
Monthly change figures are given but the key measure that is watched is the annual rate of inflation. The Bank of England has a target to keep this at 2 per cent.
An inflation spike has hit over the last two years or so, with the CPI rate peaking in October 2022 at 11.1 per cent.
Higher inflation means the rate of increase in the cost of living is increasing.
Any decline in the inflation rate is to be celebrated though, as it increases the chance of wages, investment returns and savings interest matching or beating inflation – delivering a real increase in people’s wealth.
> The best inflation-fighting savings deals
The main measure by which the Bank of England seeks to control inflation is interest rate rises. Higher inflation decreases the chance of base rate cuts and increases expectations of how high rates will go.
Expectations that the Bank of England would have to keep raising rates to combat inflation have sent mortgage rates spiralling costing mortgaged homeowners dear.
> How much would a mortgage cost you? Check the best rates
Will inflation fall again?
The key question is whether inflation has hit its peak and will continue to fall over the coming months.
Today’s figures are in line with expectations, but there are other economic pressures, with limited growth and the cooling labour market.
Rob Wood, chief UK economist at Pantheon Macroeconomics expects food price inflation to accelerate further by December, to 5.5 per cent.
The Monetary Policy Committee (MPC) is also keeping a keen eye on underlying services inflation, which is showing signs of slowing.
‘We think the jury is still out on how much underlying inflation is slowing, given some erratic factors at play and those surveys,’ says Wood. ‘Looking ahead, inflation has passed its peak, but we will have to wait until January for another decisive step down.’
Pantheon anticipates an uptick in the headline rate to 3.7 per cent in November’s reading, before dropping to 3.1 per cent in January.
The Autumn Budget will be significant, and any further tax rises on businesses or individuals are likely to have an impact on subsequent readings.
Lindsay James, investment strategist at Quilter, adds: ‘Today’s data reinforces the view that inflation is now on a clearer downward trajectory and that the Bank of England will have scope to continue easy policy.’
Will the Bank of England cut rates again?
The market is pricing in a rate cut for the MPC’s December meeting and October’s reading leaves a rate cut ‘nailed-on,’ says Wood.
‘Granted, headline inflation slowed a little less than the MPC and consensus expected… but services inflation slowed more than the MPC expected and underlying services inflation seems to be easing.
Grim faces: The Bank of England is likely to cut the base rate next month after CPI reading
‘There is enough here for the MPC to cut in December, but also enough to point to a lengthy delay until another cut with erratic factors helping the services slowdown.’
The National Institute of Economic and Social Research also anticipates a December rate cut but the MPC will ‘remain cautious in assessing the speed at which inflation is coming down.’
Andrew Wishart, senior UK economist at Berenberg Bank says there’s enough evidence for the BoE to cut rates in December.
‘At the 6 November Bank of England meeting the swing voter, Governor Andrew Bailey, said he was waiting to see if disinflation continued in “upcoming economic developments this year” before switching his vote from hold to cut.
‘Slower wage growth and services price increases than the central bank anticipated since will likely convince him that it has.
‘We therefore bring forward the next 25bp cut in our policy rate forecast to 17 December. Previously we thought the BoE would delay it until February 2026.’
What does it mean for your savings?
Inflation means the value of interest earned on savings and investments falls in real terms.
If inflation deters the Bank from cutting its base rate again, then there is a silver lining for savers as rates will remain at a higher level.
However, rising prices erode the real value of people’s savings.
Caitlyn Eastell, Spokesperson at Moneyfactscompare.co.uk, said: ‘Today just over one in two accounts offer over 3.6 per cent, but with interest rates trending downward, this number is likely to drop.
‘Competition has been scarce, especially across Cash Isas, where none of the top rates have shifted. It may be the case that providers are waiting to see what is announced in the Autumn Budget before they make any significant changes.
‘In any case, if savers find they are getting a raw deal, it is crucial they immediately switch to a more competitive rate and if they want more security against cuts, they should consider locking away their cash for a fixed period.’
> Check the best savings rates in This Is Money’s independent tables
What does it mean for your mortgage?
Peter Stimson, director of mortgages at Mpowered says: ‘Mortgage lenders have already responded to the changing outlook. Swap rates – which track future base rate expectations – ticked down at the end of October and this prompted a burst of competition on fixed rate mortgages as lenders trimmed their rates in an effort to grab a bigger slice of a market becalmed by pre-Budget uncertainty.
‘Swap rates have started to creep back up in recent days, so lenders are now likely to pause their rate-cutting until after the Budget.
‘Assuming the Budget doesn’t derail everything, the market is still expecting two or possibly three further base rate cuts by the middle of next year. But that is far from certain, and we are already approaching the bottom of the interest rate cycle.
‘If you have a mortgage with a fixed rate that’s due to expire in the first half of 2026, it’s worth shopping around and talking to a broker now. You can reserve a new rate several months before the end of your current deal, and doing so will ensure you don’t lose out if rates start creeping back up in the New Year.’
> Compare the best mortgage rates based on your home’s value and loan size
