Consumer price inflation in the United Kingdom has fallen to 3.6% in October, according to official data released today. This marks a decrease from the 3.8% recorded in September, which represented an 18-month high. This decline is the first since May and offers a measure of relief to both the government and the Bank of England.
The pound sterling experienced a slight dip, falling by more than a tenth of a cent against the US dollar following the release of the inflation figures. Despite this, the Bank of England opted to halt its cycle of quarterly interest rate cuts earlier this month.
Shadow Chancellor Rachel Reeves has affirmed her commitment to avoiding any tax or spending measures in the upcoming budget, scheduled for November 26th, that could potentially fuel further inflation. Reeves emphasized the need for fiscal prudence to avoid exacerbating inflationary pressures.
Some economists suggest that decisions made last year, including increases to the minimum wage, higher employer taxes, and other fees, may have contributed as much as one percentage point to the UK’s inflation rate. The UK’s inflation remains elevated compared to other major developed economies.
Earlier this month, the Bank of England projected that inflation would remain above its 2% target until mid-2027. This projection is largely attributed to accelerated wage growth, which policymakers deem unsustainable for price stability, particularly given the sluggish growth in productivity.
Elevated labor costs are particularly evident within the UK’s service sector. Inflation in service prices, a metric closely monitored by the Bank of England, decreased to 4.5% in October from 4.7% in September. This decline was marginally larger than economists had predicted, who anticipated a rate of 4.6%.
The slight easing of inflation provides a glimmer of hope, but significant challenges remain in bringing inflation back to the Bank of England’s target level. The coming months will be crucial in determining the effectiveness of current monetary policies.
