MercoPress. South Atlantic News Agency

UK inflation down to 3.6% in October; Autumn Budget to be announced next week

Chancellor of the Exchequer Rachel Reeves said “this fall in inflation is good news for households and businesses across the country, but I’m determined to do more to bring prices down.”

UK’s twelve-month inflation rate slid to 3.6% in October, down from 3.8% in September, and a major achievement ahead of the government’s Autumn Budget next week, according to the Office for National Statistics. Core inflation, excluding energy, food, alcohol and tobacco, rose by 3.4% in the year to October, down from 3.5% in September.

“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 cost of hotels was also a downward driver, with prices falling this month,” Grant Fitzner, chief economist at the ONS, commented on Wednesday.

These downward pressures were only partially offset by rising food prices, following the dip seen in September, while the annual cost of raw materials for business continued to increase.

Responding to the latest data, U.K. Chancellor of the Exchequer Rachel Reeves said “this fall in inflation is good news for households and businesses across the country, but I’m determined to do more to bring prices down.”

“That’s why at the budget next week I will take the fair choices to deliver on the public’s priorities to cut NHS waiting lists, cut national debt and cut the cost of living,” she said, in comments released by the Treasury. 

However yields on UK government bonds (gilts) were marginally lower across the maturity curve. The U.K. government has the highest long-term borrowing costs of any G-7 nation, with the yield on its 30-year gilt trading well above the critical 5% threshold.

Economists expect the Bank of England will cut interest rates at its next meeting in December, as inflation cools and growth remains stubbornly low; the U.K. economy just managed 0.1% in the third quarter, preliminary figures released last week showed.

However for now all eyes are on the UK Treasury’s Autumn Budget, which will be announced on Nov. 26, with analysts looking to see the extent of expected tax rises, which could be disinflationary.

The latest inflation reading will provide “much-needed positive relief” for Chancellor Reeves, according to Brad Holland, director of investment strategy at J.P. Morgan Personal Investing.

“While a slowing rate of price rises will be welcome news to many – not least of all UK consumers preparing for their festive spending – UK economic picture remains mixed,” he said in emailed comments.