INFLATION SET TO FALL FROM 3.8% BUT STAY WELL ABOVE THE BANK OF ENGLAND TARGET

Inflation is set to fall from a high of 3.8 per cent when the latest figures are released on Wednesday.

The consumer prices index (CPI) measure of inflation sat at 3.8 per cent when September’s figures were released last month, but economists expect October’s number will be lower.

The Bank of England (BoE) said it believed inflation had “peaked” when it announced its decision to hold interest rates at 4 per cent earlier this month.

And most economists expect it will now begin to steadily fall.

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The reduction would give Chancellor Rachel Reeves a rare bit of good news a week before she delivers her Budget on 26 November.

Forecasters at Pantheon Macroeconomics believe inflation will have fallen to 3.5 per cent when the latest figures are released on Wednesday morning.

Barclays, also thinks September “represented the peak of the inflation hump” and that CPI will fall to 3.5 per cent in October.

Economists at Deutsche Bank Research expect the figure will fall to around 3.7 per cent.

The BoE itself expects inflation to hit 3.6 per cent.

In a note sent over the weekend, Deutsche Bank’s chief UK economist Sanjay Raja said: “After a downside surprise in September, we think inflation will likely step down to start the fourth quarter of 2025.”

But he added there were still some factors that could put upward pressure on the number.

Robert Wood, of Pantheon Macroeconomics, said his forecast was lower than the BoE’s because of his “lower food forecast”.

But he said there were sources of uncertainty to the forecast as well.

He explained: “We factor in the government’s 3.1 per cent hike to English and Welsh university tuition fees. We assume universities raise foreign-student fees by 6 per cent, down from 8.8 per cent in 2024, but this is highly uncertain.”

Inflation is still far lower than it was back in 2022, when it peaked at more than 11 per cent. No return to this sort of level is expected in the near future.

But it has not been below the BoE’s 2 per cent target level since September last year.

Higher inflation erodes consumers’ spending power. If your money is not growing at least by the rate of inflation, it is worth less in real terms.

It also limits how much the Bank can cut interest rates by, which influences the price of mortgages.

Interest rates tend to be higher if inflation is higher, and lower if inflation is falling towards its target.

The BoE interest rate was cut to 4 per cent in August, and a reduction in December is still on the cards, if inflation continues to fall.

A cut would provide some welcome relief to Reeves and Sir Keir Starmer, as it would lower housing costs for millions of households.

2025-11-17T06:19:38Z