UK inflation, which measures the rate at which consumer prices rise, fell to 4.6% in the year to October, down from 6.7% in September, according to the latest figures from the Office for National Statistics (ONS). This was the lowest inflation rate since March 2022 and the steepest single month decline since 1992.
The main reason for the fall was the 23% year-on-year cut in the energy price cap for the typical annual bill, which reduced gas costs by 31% and electricity by 15.6%. The energy price cap, which limits what suppliers can charge consumers per unit of energy, was lowered by the regulator Ofgem in October following a drop in wholesale prices.
The government claimed that it had met its pledge to halve inflation by the end of the year, which was 10.7% in the last quarter of 2022. However, economists and think tanks said the government did not have much control over inflation and that the fall was mainly due to the energy price cap and the Bank of England’s interest rate hike.
The Bank of England raised interest rates from 4.75% to 5.25% in November, the highest level since 2008, to cool demand in the economy and slow price rises. Higher interest rates have increased mortgage costs but also boosted savings rates for some households.
Despite the fall in inflation, many households will not feel better off, especially when it comes to energy bills, as government support for bills is no longer in place. Falling inflation also does not mean that prices are going down, only that they are rising less rapidly. Over the past two years, the cost of energy has surged by 49% and food prices by 28%, far outstripping the 14% rise in average earnings.
UK inflation remains the highest among the G7 group of advanced economies and above the Bank of England’s 2% target. The Bank of England expects inflation to peak at 6% in April 2024 before falling back to 2% by 2026.
The ONS said price rises slowed in October as “last year’s steep rise in energy costs has been followed by a small reduction in the energy price cap this year”. It also said food prices were little changed and hotel prices had fallen.
The ONS said the largest downward contributions to the change in the inflation rate came from housing and household services, transport, and restaurants and hotels. The largest upward contributions came from clothing and footwear, furniture and household goods, and recreation and culture.