UK inflation dropped to 3.6% for the 12 months to October 2025, boosting hopes for an interest cut before the end of the year.
The Consumer Prices Index (CPI) figure, reported by the Office for National Statistics (ONS), is the lowest since June this year, though some economists had expected a sharper drop to 3.5%. A greater reduction was prevented mainly by an increase in food inflation, up from 4.5% in September to 4.9% in October. Among the products increasing at a faster rate were staples such as bread, meat, fish and vegetables, as well as chocolate and confectionary.
Grant Fitzner, the ONS chief economist, said: "Inflation eased in October, driven mainly by gas and electricity prices, which increased less than this time last year after changes in the Ofgem energy price cap.
"The cost 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."
This reading marks the 13th consecutive month in which the CPI has topped the government's 2% target, but it has still raised hopes that there could be an interest rate cut this year. Core inflation, a measure that excludes food and energy, is considered a strong indicator of the Bank of England's next move and fell from 3.5% for September to 3.4% for October. Services inflation also fell, from 4.7% to 4.5%, below forecasts of 4.6%. Some economists now believe that inflation will follow a downward trajectory in the coming months, creating conditions for lower interest rates.
Will there now be an interest rate cut this year?
The Bank of England’s monetary policy committee (MPC) will meet once more this year, in December, to decide on any changes to the base rate. Most predictions have been that there will be a change to the rate, especially as the vote to hold the base rate at the last MPC meeting was a narrow 5-4 decision.
The market is expecting that the next base rate change will most likely be a quarter-point cut in December, with the swaps market estimating that there is a more than 85% chance of a rate cut at the 18th December MPC meeting.
Sanjay Raja, chief UK economist at Deutsche Bank, said there was now a "clearer path for a Christmas rate cut".
Despite this optimism from some quarters, inflation does still remain high and above the equivalent rate for any other country in the G7. While core and services inflation, particular areas of focus for the MPC, have dropped, food inflation has risen. So while the headline may be that the rate of price increases is reducing, this is not what consumers will see on their supermarket bills.
The Autumn Budget will be a major part of the MPC's decision making and could drastically shift expectations, depending on which of the swirling rumours come to pass. Suren Thiru, economics director at the Institute of Chartered Accountants, said: "Though the conditions for a December interest rate cut are falling into place, the Budget is a last obstacle as rate-setters will want to gauge the effect of the policies announced before authorising another rate reduction."
If you're interested in finding out more about where interest rates might go in the future, check out our article on the latest UK interest rate predictions.
What caused inflation to drop to 3.6%?
The key to inflation dropping to 3.6% has been put down to gas and electricity prices. Household energy prices are capped by Ofgem, the energy regulator, and still rose in the 12 months to October 2025, but at a slower rate than in the 12 months to September 2025. The 2% hike was significant, but much smaller than the equivalent 9.6% hike last year.
Hotel prices also influenced the overall CPI figure, as though rates usually fall in late autumn, this year they dipped more than they did last year.
The headline drop would have been greater were it not for annual food inflation rising to 4.9%. This will be especially frustrating for consumers as it follows on from the first month-on-month fall in food prices since May 2024, which we saw in September. The cost of meat, fish, vegetables, bread, sugar, jam, honey and chocolate all rose and were key to keeping inflation just above the expected rate of 3.5%.
These increased costs are in part down to high global demand for chicken, shrinking UK cattle herds pushing up beef costs, and poor cocoa and coffee harvests. However, supermarkets have also pushed up prices in order to cover their own increased costs from the hike in employer national insurance introduced at the 2024 Autumn Budget.
How will the inflation figures affect mortgages?
The odds on a 0.25% December cut to the Bank of England base rate are now looking very favourable, though there is some scepticism that this would trigger successive drops in 2026. The base rate going down would be great news for anyone looking to remortgage or buy a home in the coming months, as mortgage rates tend to follow the trajectory of the base rate.
Based on a loan-to-value ratio of 60%, the lowest two-year fixed-rate mortgage deal on the market currently comes in at 3.67% and the best five-year fixed-rate mortgages offer rates from 3.84%. Those looking for a two-year tracker deal can find rates as low as 4.11%, while the best five-year tracker deal is 4.60%. The top deals can be found in our regularly updated article, 'The best mortgage rates in the UK'.
If you are unsure about the best type of mortgage for you, read our article 'Remortgaging in 2025', where Damien examines whether now is the right time to fix your mortgage rate.
What does inflation mean for savers?
Inflation has fallen to 3.6%, but it is still well above the government target, which is bad news for savers. It is easy to assume that high inflation brings about high interest rates and better returns for savers, but that does not always work out in practice. While it is true that inflation remaining above the 2% target means that the base rate of interest could be maintained higher for longer, high inflation is still bad news for your savings.
Banks often take much longer to pass on rate rises to savers than they do borrowers. This means it can take a long time for high inflation figures to translate to a boost in the interest rate on your savings. Also, inflation erodes the value of cash, so your money in the bank will buy you less as the cost of living goes up.
However, slowing inflation is good news for savers, as what you have put away should hold its value for longer, even if it triggers a rate cut that reduces the headline interest on your account. You can find the best savings accounts in our article ‘Best savings accounts in the UK’.
What to do if you are struggling to pay your bills
Many essential household costs are still on the rise. Food bills are gong up, energy costs remain high and many household incomes are not keeping pace with the cost of living. However, there is help available if you are struggling.
If you think you might fall behind on your household bills, the best thing to do is to reach out to the relevant supplier in the first instance. If you explain your situation, there will typically be steps they can take to help you come up with a payment plan that works for both parties.
It's also a good idea to make sure you are claiming all of the support you might be entitled to. You can check your eligibility for various benefits through the website entitledto.
We also have several articles that may be more specific to your situation and could offer further help:
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