October Inflation Expected to Ease, Bringing Relief to Households and Government
Inflation in the UK is expected to have cooled in October, offering potential respite for households facing rising living costs and a timely boost for the Government ahead of its autumn Budget. Economists anticipate the Consumer Prices Index (CPI) inflation rate will have slowed to 3.5%, down from 3.8% in September, when official figures are released on Wednesday.
September’s CPI had remained steady at 3.8%—the same level observed in both July and August—highlighting a three-month plateau in price growth.
Why This Matters for Households
After months of persistent inflation, households could see some relief, particularly in essential spending categories. Elevated prices for food and drink, including items such as chocolate, coffee, cheese, and eggs, have been driving much of the pressure on overall inflation this year.
Recent data shows that food and non-alcoholic drink prices fell between August and September, marking the first monthly decline since May 2024. Economists expect this easing trend to continue in October, providing some breathing room for household budgets.
Additionally, energy costs are expected to play a role in slowing inflation. While Ofgem raised the energy price cap by 2% in October, this is considerably lower than the 9.6% hike recorded last year, suggesting that energy price inflation will have a dampening effect on overall CPI.
Implications for Government and Policy
A lower inflation reading would also offer a positive signal for the Government, particularly as it prepares for the autumn Budget statement. Chancellor statements have emphasized the importance of bringing inflation down to support households grappling with cost-of-living challenges and to create room for the Bank of England to potentially cut interest rates.
Economic growth for the UK was below expectations in the third quarter, and unemployment reached its highest rate since 2021, making any easing in inflation an encouraging development.
Jack Meaning, Chief UK Economist at Barclays, believes September represented the peak of the inflation spike, forecasting CPI to drop to 3.5% in October. Likewise, UK economists Robert Wood and Elliott Jordan-Doak from Pantheon Macroeconomics project the same figure, largely driven by falling energy costs. However, they caution that factors such as university tuition fees, particularly for international students, could have contributed upward pressure on prices last month.
Meanwhile, Sanjay Raja, Chief UK Economist for Deutsche Bank, predicts a smaller decrease in overall inflation to 3.7% in October but emphasizes that the upcoming autumn Budget, scheduled for November 26, is likely to be the next critical update on inflation expectations. Tax measures, indexation adjustments, and potential changes in duties and food prices could influence 2026 inflation trajectories.
What This Means for Consumers and Markets
Households: Lower inflation can improve purchasing power, ease cost-of-living pressures, and provide more certainty for budgeting.
Government: Easing inflation could allow the Chancellor to introduce modest fiscal measures without stoking price growth.
Financial Markets & Forex: Inflation trends affect Bank of England interest rate expectations, which in turn influence GBP currency pairs like GBP/USD and GBP/EUR. Traders will monitor October CPI closely for signals on monetary policy adjustments.
Conclusion
October’s anticipated slowdown in inflation represents a welcome reprieve for households and provides the Government with breathing space ahead of the autumn Budget. While energy and food costs are key drivers, broader fiscal and policy decisions in the coming weeks will shape the outlook for UK inflation in 2026.
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