Inflation falls by less than expected as prices rise by 3.6 per cent in new blow to Rachel Reeves’ Budget hopes

The rate of Consumer Prices Index (CPI) inflation fell to 3.6 per cent in October from 3.8 per cent in September, the Office for National Statistics revealed today.

Economists had widely expected the rate to slow by slightly more to 3.5 per cent, ahead of Chancellor Rachel Reeves unveiling her Budget on November 26.

The fall – mainly driven by a lower annual increase in gas and electricity prices – comes after September’s CPI rate remained at the same level as July and August.

Overall price rises cooling off across the UK could offer some respite for households after inflation had previously remained at the same level for three months in a row.

Elevated food and drink prices have been putting pressure on overall inflation this year, with households seeing steep rises for chocolate, coffee, cheese and eggs.

And food price inflation increased again last month – with average prices 4.9 per cent more expensive than in October last year, according to the latest ONS data. 

But the overall fall was ‘driven mainly by gas and electricity prices, which increased less than this time last year following changes in the Ofgem energy price cap’, it said.

Ofgem raised the energy price cap by 2 per cent in October, but this is significantly less than the 9.6 per cent hike last year, meaning energy price inflation has dropped.

Prime Minister Sir Keir Starmer and Chancellor Rachel Reeves together in Anglesey last week

ONS chief economist Grant Fitzner said: ‘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.’

The Chancellor has previously said she wants inflation to fall to support people with cost-of-living challenges and give the Bank of England room to cut interest rates.

And Ms Reeves said today: ‘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.’

Kris Hamer, director of insight at the British Retail Consortium, said: ‘Food inflation edged back closer to 5 per cent, after some respite in September, in what will be unwelcome news for consumers just a week before the Budget.

‘Despite this rise, headline inflation fell for the first time in seven months in October, helped by the introduction of a new energy price cap. Meanwhile, an early start to Black Friday promotions helped to keep clothing and footwear inflation low.

‘There will also be some relief that, while the cost of the weekly shop remains high, some products including olive oil did fall in price on the month.’