- In October, the inflation rate in the UK fell to 4.6%, down from 6.7% in September. This decrease was attributed to various factors, including a notable contribution from lower housing and household service prices, particularly the cost of electricity.
Components of Inflation:
- Housing and household service prices, with a specific emphasis on electricity costs, made the most substantial downward contribution to the overall decrease in inflation; this indicates the influence of easing energy inflation on the broader price index.
- The Core Consumer Price Index, which excludes energy, food, alcohol, and tobacco, still registered an increase. It rose by 5.7% from 12 months to October, although this decreased from the 6.1% recorded in September. The persistence of relatively high core inflation suggests ongoing challenges related to domestically generated inflation.
Real Wages and Cost-of-Living Relief:
- Real wages continued to rise, with data showing a 7.9% year-on-year increase in total pay from July to September. This positive trend in real wages alleviates concerns associated with the cost of living.
Impact on Policy and Economic Outlook:
- The substantial fall in inflation is anticipated to provide relief in addressing the cost-of-living crisis. The reduction in inflation could also influence the decision-making process regarding interest rates, with a pause in rate rises expected to benefit mortgage holders.
- Despite the positive aspects, concerns persist, mainly related to core inflation, which remains relatively high. Lingering effects of earlier increases in energy and food prices contribute to the challenges, requiring sustained efforts to address domestically generated inflation.
The UK’s inflation rate dropping to a two-year low in October is a positive development for consumers facing cost-of-living pressures. While the decline is attributed to easing energy inflation, challenges remain, and policymakers will closely monitor core inflation. The impact on real wages provides a silver lining, and the economic outlook will depend on sustained efforts to address underlying inflationary pressures.