The Office for National Statistics in Britain is reporting that annualised inflation as measured by the Consumer Price Index, cooled for the first time in five months, declining from a peak of 3.8% over July, August and September to 3.6% in October. 

Inflation has been stuck at 3.8%, nearly double the Bank of England’s (BoE’s) 2% target since July. This slight dip has resulted in some easing of the pressure on households and provided a boost for Chancellor Rachel Reeves, as she prepares for her make-or-break budget next Wednesday. 

Borrowing costs have been cut five times since the British Labour Party came to power in July 2024. Analysts now expect that inflation has peaked, giving Reeves a chance to point to some positive news for consumers, with the easing having been led by a fall in gas and electricity prices. However, households are still facing higher food bills, which has raised some concerns for struggling consumers. 

Still, it has helped increase expectations of an interest rate cut by the BoE in December, with the vote likely hinging on Governor Andrew Bailey. 

Reeves has vowed to cut living costs in her highly anticipated tax and spending statement on November 26, including measures to bring down the inflation rate to smooth the path for the Bank of England to cut interest rates. She is no longer expected to raise income tax but will make up an expected shortfall through smaller tax rises from other sources.

Threadneedle Street, sometimes referred to as the BoE, opened the door earlier this month to a post-budget cut in borrowing costs in December after it signalled inflation had probably peaked amid mounting fears over the strength of the economy. In the meantime, analysts are saying the BoE will cut interest rates in December and again early next year, as inflation cools over the coming months. 

The BoE’s Monetary Policy Committee voted 5-4 to leave rates unchanged in September, with Governor Bailey casting the deciding vote, wanting to wait for evidence of declining inflation before committing to a cut.