Inflation Cools to 3.6%: A Four-Month Low

The UK’s annual inflation rate eased to 3.6% in October 2025, its lowest level in four months, offering a clear sign that price pressures are slowly calming.

The result matched expectations from the Bank of England and market forecasts, indicating that the recent easing in energy costs is finally making its way through the wider economy. Housing and utility prices showed significant slowing, with gas and electricity inflation dropping sharply after the regulator’s latest price-cap revision.

Services Calm, but Food Pressures Return

Several categories that have remained stubbornly elevated over the past year also softened. Services inflation slipped to 4.5%, and hotels, restaurants, clothing, and footwear posted gentler price increases. These movements are important for policymakers, as they signal early signs of relief in areas that have kept overall inflation elevated.

Not all components moved lower, however. Food and non-alcoholic beverages climbed to 4.9%, while recreation and culture also picked up. The uneven pattern indicates that the disinflation process still has work to do.

Core Inflation Reaches a Six-Month Low

CPI rose 0.4% monthly, matching forecasts and rebounding from September’s flat reading. Core inflation eased to 3.4%, its lowest in six months, reinforcing the view that underlying pressures are gradually losing strength, even though the journey back to the Bank of England’s 2% target remains slow and uncertain.

Rate-Cut Expectations Firm Up

For financial markets, the data strengthened expectations that the Bank of England may start easing policy before year-end. Pricing now reflects nearly 20 basis points of cuts for the December meeting, pointing to growing confidence that a shift in monetary conditions is close. At the same time, rising gilt yields and ongoing concerns about the UK’s fiscal direction continue to shape the wider backdrop.