Inflation drops to 3.6% in the “calm before the storm” of the Budget: "Increases the chances of a rate cut"

INFLATION has dropped to 3.6% in the “calm before the storm” of the Budget as experts now expect a rate cut next month.

The Consumer Prices Index (CPI) rose by 3.6% in the 12 months to October 2025, down from 3.8% in September, according to official data published today. 

On a monthly basis, CPI rose by 0.4% in October 2025, compared with a rise of 0.6% in October 2024.

Housing and household services made the largest downward contribution to the monthly change in both CPIH and CPI annual rates, food and non-alcoholic beverages made the largest offsetting upward contribution. 

Core CPI (CPI excluding energy, food, alcohol and tobacco) rose by 3.4% in the 12 months to October 2025, down from 3.5% in the 12 months to September. 

The CPI goods annual rate fell from 2.9% to 2.6%, while the CPI services annual rate fell from 4.7% to 4.5%.

Core CPIH (CPIH excluding energy, food, alcohol and tobacco) rose by 3.7% in the 12 months to October 2025, down from 3.9% in the 12 months to September; the CPIH goods annual rate fell from 2.9% to 2.6%, while the CPIH services annual rate fell from 4.9% to 4.6%.  

Grant Fitzner, Chief Economist, ONS, said: “Inflation eased in October, driven mainly by gas and electricity prices, which increased less than this time last year following changes in the Ofgem energy price cap. 

"The costs of hotels was also a downward driver, with prices falling this month. These were only partially offset by rising food prices, following the dip seen in September. The annual cost of raw materials for businesses continued to increase, while factory gate prices also rose.”

Ben Perks, Managing Director at Stourbridge-based Orchard Financial Advisers, said the Budget next week is looming large.

He added: "This feels like the calm before the storm. It’s always encouraging to see inflation edge lower and this could lead to lower interest rates and provide some respite to borrowers. 

“Get those deals locked in though, as the Budget looms we could be looking at a very different story in a few weeks time.”

Omer Mehmet, Managing Director at Welling-based Trinity Finance, said a rate cut is now expected, with the Budget as a caveat.

He continued: "Inflation edging down slightly has increased the chances of a rate cut next month, just in time for Christmas. 

“But clearly nobody knows how extreme the fallout from the Budget, a week today, could be — and how that could shape monetary policy moving forwards."

Chris Barry, Director at London-based Thomas Legal, said Chancellor Rachel Reeves will be relieved with the figures.

He added: “The slowing of the rate of inflation is a golden goose for Rachel Reeves. The way inflation is measured as a 12-month rolling average meant this month was highly likely to reduce as big numbers dropped off from last year. 

"This is more than likely the reason the Budget was pushed back by a month. This will probably lead to a reduction in base rate and the Chancellor can caveat her tax rises with the fact the economy is improving and things will get better for all.”

Ken James, Director at London-based Contractor Mortgage Services, said the Bank of England's confidence will be helped by the data.

He added: “Inflation is still above the 2% target, but direction matters, and this will certainly increase the Bank of England's confidence with inflation returning towards the target. 

"Even a shift in tone from Threadneedle Street tends to move mortgage pricing. And swap rates may also react positively giving lenders the ability to make more rate cuts. 

"So while the trend is positive, the path down won’t be totally smooth and we still have a long way to go and a Rachel Reeves Budget to navigate before we start to feel more in the Christmas spirit.”

Katy Eatenton, Mortgage & Protection Specialist at St Albans-based Lifetime Wealth Management, said inflation is still very high.

She continued: "Yes, inflation has come down, so the chances of a rate cut by the Bank of England in December have increased. 

“But equally, it's still considerably above target and the Budget could deliver any number of curveballs. A base rate cut is now more likely but is not baked in.”