Fall in UK inflation looks like turning point that heralds interest rate cut

"The drop from 3.8% to 3.6% in the October consumer prices index sets the UK on a downward path that reduces the pressure on shoppers, businesses and the government. Never mind that City economists had expected a fall last month. It appears to be a turning point back towards normality after a topsy-turvy year that everyone wants to put behind them."

"Rachel Reeves has given strong hints that unlike last year there will be measures in the budget next week to accelerate the fall in prices. A cut in the 5% VAT rate on energy is the leading contender, but there could be more. On Tuesday night Reeves lent her support for a competition crackdown on the dentistry industry and vet businesses, both of which have undergone a merger mania, prompting concerns about monopoly pricing practices."

"The chancellor knows that most governments caught in the inflation spiral of 2022-23 were kicked out of office. She is desperate that high inflation does not get added to the checklist of grievances against Labour at the next election. The Bank of England's forecasts say inflation is on track to fall to its 2% target by 2027, so the chancellor should be OK. However, she also wants interest rates to fall, giving a boost to businesses and consumers."

Inflation cooled from 3.8% to 3.6% in October, easing pressure on households, firms and the government. Prices rose earlier due to a surge in gas and electricity bills and sharply higher food costs. Global factors such as tariffs and domestic tax increases also pushed up prices. The chancellor is signalling budget measures, with a cut in the 5% VAT rate on energy as a leading option and potential competition interventions in dentistry and veterinary sectors. The Bank of England forecasts inflation reaching 2% by 2027, but monetary policy faces a split over whether interest rates must stay elevated to meet that target.

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