UK inflation has fallen to its lowest rate for four months to 3.6%, raising hopes that it may now have peaked.

But economists forecast it would drop to 3.5% driven the ONS says by weaker rises in household energy costs and an unusually large autumn dip in hotel prices, while on the other hand food prices  picked up again and fuel costs rose.

With the Chancellor preparing next week’s Budget, Rachel Reeves says she is “determined to do more to bring prices down”, although she acknowledges that the cost of living remains “a big burden” for families.

Will it be enough?

But will the fall will be enough for the Bank of England to cut the base rate at its next meeting on 18 December. Swap rates, which influence mortgage costs, should come down in advance of then, and so lenders are likely to continue making small reductions in their fixed-rate deals.

There could, though, be some more significant movement if confidence grows in the likelihood of a cut, and, according to Rob Wood, Chief UK Economist at research firm Pantheon Macroeconomics, one is now “nailed-on” for December, but that another cut would not happen for quite some time after that.

Inflation still needs to move sustainably below the Bank of England’s two per cent target before we are likely to see more meaningful reductions in interest rates.”

Nathan Emerson, CEO of Propertymark, welcomed the news, but urged caution:

“The Bank of England held interest rates at four per cent earlier this month, reflecting continued caution among policymakers while inflation remains above levels last seen in 2019.

“Today’s fall in inflation will be welcome news for consumers, particularly those hoping to take their next step onto the housing ladder, as it provides a greater sense of stability and confidence.

“However, inflation still needs to move sustainably below the Bank of England’s two per cent target before we are likely to see more meaningful reductions in interest rates.”

Today’s inflation data was pretty pivotal in proving the central bank’s point that inflation has indeed peaked.”

John Phillips, CEO of Just Mortgages and Spicerhaart, says: “Today’s inflation data was pretty pivotal in proving the central bank’s point that inflation has indeed peaked. No doubt they will be relieved to see CPI drop in October, as will households up and down the country who have faced considerable pressure, whether it’s at the petrol pump, the checkout or in their energy prices. Perhaps most pleased will be the Chancellor, just one week away from Budget day.

“Hopefully this is indeed the start of an easing in inflationary pressures, and the upcoming Budget doesn’t stunt that progress. If anything, today’s news should only increase the chances of Christmas coming early in the form of a base rate cut next month – particularly after the grim news on unemployment last week.

“No doubt swap rates will continue to react favourably to this positive news, which will likely reflect in the activity of lenders across the market. This will be hugely welcome, particularly for those looking to get buying and moving plans back on track. As advisers, it’s up to us to keep sharing the positive headlines we are seeing in the current market and keep giving clients the confidence and support to push on with plans.”

And Kris Brewster, Director of Retail Banking at LHV Bank, says:

“This is better news as stubborn inflation figures are finally easing back down, with economists expecting it to drop below the 3% barrier in early 2026.”