UK Inflation Eases to 3.6% Ahead of Crucial Labour Government Budget

Britain’s annual inflation rate eased in October, offering a rare boost to the embattled Labour government just a week before it presents its next national budget.

Data released on Wednesday by the Office for National Statistics (ONS) shows the Consumer Prices Index rose 3.6% year-on-year, down from 3.8% in September.

The November 26 budget is expected to include tax increases as the Labour administration — currently trailing in opinion polls — seeks to rein in public debt and strengthen funding for essential services.

‘Good news’ — Reeves
Finance minister Rachel Reeves welcomed the inflation dip, saying it brings some relief “for households and businesses across the country,” but cautioned that more work was needed.

“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,” Reeves said.

According to the ONS, the slowdown resulted primarily from smaller increases in gas and electricity prices compared to last year, although rising food costs partially offset the overall drop.

Analysts predict that the lower inflation figure could prompt the Bank of England (BoE) to reduce interest rates in December — though the decision may hinge on next week’s budget.

The figures come after last week’s data showing the UK economy lost momentum in the third quarter and unemployment edged higher.

Since taking office in July 2024 after 14 years of Conservative rule, Prime Minister Keir Starmer’s Labour government has struggled to generate consistent economic growth. Many economists say Reeves’ decision to raise business taxes in her first budget contributed to the drag.

Wealth Club analyst Isaac Stell said “all eyes now turn to the budget,” noting that tax hikes appear inevitable. He added that the BoE will be watching closely to assess how fiscal tightening impacts demand and growth.

The BoE kept its benchmark rate at 4.0% earlier this month, with governor Andrew Bailey stressing that the bank needs clearer evidence that inflation is stabilising near its 2% target. Retail banks typically pass BoE rate cuts on to customers, easing mortgage and business loan costs.

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