UK Inflation Hits 4-Month Low; Rate Cut Expected

LONDON 

The United Kingdom’s inflation rate has eased to a four-month low, raising expectations that the Bank of England may reduce interest rates as soon as December.

According to the latest figures from the Office for National Statistics, annual consumer price inflation dropped to 3.6% in October, down from 3.8% in September, marking the lowest reading since June. Economists say this slowdown reflects moderating energy prices and softer costs in travel and hospitality sectors.

Energy bills saw smaller increases this month, following a smaller-than-expected rise in the regulator Ofgem’s price cap. Prices for hotels and air travel also showed minimal movement, easing pressure on households. However, food and non-alcoholic beverage prices climbed to 4.9%, up from 4.5% the previous month, highlighting ongoing cost pressures in everyday essentials.

The Bank of England’s Monetary Policy Committee (MPC) has held the base rate at 4%, but recent trends have strengthened the case for a potential cut. Last month, the MPC voted 5-4 to keep rates steady, signaling that a reduction may be possible if inflation continues to ease. Market analysts now assign roughly an 80% probability of a 0.25 percentage point rate cut in December, contingent on upcoming economic data and the government’s budget plans.

Chancellor Rachel Reeves is set to deliver the Autumn Budget later this month, which could include tax adjustments and new spending measures aimed at controlling the public finance deficit. Policymakers are expected to consider these developments before finalizing any interest rate decisions.

The broader economic picture remains cautious. Wage growth has slowed, unemployment is inching higher, and overall economic growth forecasts have been revised downward. These conditions support the argument for a more accommodative monetary policy to stimulate borrowing and investment.

While inflation remains above the Bank’s 2% target, the recent decline represents a key turning point. If the trend continues and the budget measures are favorable, the Bank of England may implement its first rate cut of the current cycle in December a move that could benefit borrowers but may pose challenges for savers.

This development comes as policymakers balance the need to support growth while keeping inflation under control, a task that will shape economic policy heading into 2026.

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