UK inflation fell to 3.6% in October, giving chancellor Rachel Reeves a timely boost as she prepares to deliver her Budget on 26 November.
The ONS data marks the first fall in inflation in five months, cooling from the 3.8% reading seen across July, August and September.
Despite the drop, the UK still has the highest inflation rate in the G7.
Reeves said the fall was welcome but added she was “determined to do more to bring prices down”, pledging to use the Budget to cut NHS waiting lists, reduce national debt and ease the cost of living.
Markets now see an 80% chance of an interest rate cut in December, as speculation builds that the Bank of England will deliver an early Christmas present for borrowers.
Saltus co-CIO Charlie Ambler said the fall strengthens expectations of a gradual rate cutting cycle, but warned decisions will depend on services inflation, wage pressures and Budget reforms.
“Investors should not lose sight of the need to prioritise quality and resilience in their portfolios. A patient, disciplined approach remains essential,” he said.
Kevin Brown, savings expert at Scottish Friendly, said falling inflation could be a double-edged sword, with cheaper mortgages likely but a decline in savings rates.
“With inflation moving lower, the Bank of England is more likely to reduce borrowing costs at its next meeting. Now is the time for savers to shop around for the best deals,” he said.
Brown added that investing is still the only reliable way to outpace inflation over the long term. He suggested capping Cash Isa allowances at £8,000 to encourage more savers into equities.
Richard Pike, chief sales and marketing officer at Phoebus Software, said the latest figures give Reeves a “much-needed pre-Budget boost”.
He said an interest rate cut could “alleviate affordability pressures, unlock borrowing potential and support increased mortgage activity”.
Brad Holland, investment director at J.P. Morgan Personal Investing, said today’s data suggests inflation is on a “clearer downward trajectory”, adding that “two soft readings might just be enough” to prompt the Bank to act.
Lindsay James, investment strategist at Quilter, said the economic backdrop remains fragile despite improving inflation.
“Growth has been subdued all year and the labour market is cooling. The return of inflation towards target is as much a reflection of slower activity as it is an improvement in supply,” she said.
Hargreaves Lansdown head of retirement analysis Helen Morrissey warned retirees that inflation planning remains critical.
“Level annuities offer higher starting incomes, but inflation-linked options may deliver more over time. It is an important trade-off given that annuities cannot be unwound,” she said.
Professor Joe Nellis, economic adviser at MHA, said the fall signals a shift toward greater stability and increases the chances of a December rate cut.
“Unless conditions change dramatically, a timely interest rate cut now looks almost certain,” he said, adding that today’s data marks “a turning point rather than a finish line”.
