The ONS has released the latest UK Consumer Prices Index data, showing inflation easing to 3.6% in the year to October 2025, down from 3.8% in September.
The modest decline, widely anticipated, was driven primarily by lower costs in housing and household services, which contributed most to the fall in both CPI and CPIH. Rising prices in food and non-alcoholic beverages partially offset the drop. This marks the first reduction in inflation in five months.
With the Budget just a week away, the print will be closely analysed by wealth managers and DFMs as they assess the economic backdrop for portfolio strategy. Softer inflation strengthens the case for the Bank of England to consider an interest rate cut in December, which could influence government bond yields, equity valuations, and income-focused strategies.
From a market perspective, the data suggests a slightly less aggressive monetary policy path, which may support risk assets while also creating opportunities to review allocations in fixed income and cash-sensitive strategies. For DFMs, the key question is whether this moderation signals a durable trend or a temporary reprieve, decisions that will affect positioning across both growth and income-oriented client portfolios.
Experts across the wealth management sector have shared their analysis and reaction to these latest inflation data with us as follows:
Luke Bartholomew, Deputy Chief Economist, at Aberdeen said:
With inflation broadly coming in as expected, the path is now clear for a December rate cut from the Bank of England. Inflation is likely to continue to moderate from here as weakness in the labour market means underlying inflation pressures are fading. Indeed, the upcoming budget is likely to involve measures specifically designed to push down on inflation in things like energy prices, while the overall degree of fiscal consolidation is also likely to weigh on growth and inflation in the medium term. All this means interest rates are likely to fall further next year, perhaps down to 3% or so.
Lindsay James, investment strategist at Quilter said:
Today’s figures show that headline inflation has come in at 3.6%, which is in line with expectations and reflects the continued easing of price pressures across the economy. Energy and restaurant and hotel costs helped to lower the headline rate but food inflation actually ticked up unexpectedly.
Although the direction of travel is improving, the wider economic backdrop remains fragile. Growth has been subdued all year, and the labour market is now cooling at a faster pace. The economy is clearly at a point of significant risk as we move towards 2026. With quarter on quarter growth successively weakening through 2025, incoming significant tax hikes on both corporates and individuals could snuff out remaining limited optimism. Amidst rising unemployment , ill thought-out plans to target the tax relief on offer from salary sacrifice pensions not only store up greater problems for the future but also make workers even more expensive for companies who have already been hit hard by hikes to National Insurance and the minimum wage.
With the Budget now seemingly at risk of missing already low expectations, economic growth seems likely to come under further pressure. The flipside to this is that persistently above-target inflation may come down earlier than expected, ushering in larger rate cuts in its wake. Markets had already been pricing a strong 80% likelihood of an interest rate cut in December. Today’s data reinforces the view that inflation is now on a clearer downward trajectory and that the Bank of England will have scope to continue easing policy.
However, the return of inflation towards target is as much a reflection of slower activity as it is of any meaningful improvement in the supply side of the economy. While falling inflation provides some relief for households, it also highlights the challenge of generating stronger, more sustainable growth. Any rate cuts delivered in the coming months will be responding to an economy that is still struggling to build momentum.
George Lagarias, Chief Economist at Forvis Mazars, said:
Growth can’t ignore the trade war and inflation can’t ignore gravity. From this perspective, today’s number comes as no surprise, bringing us that much closer to a December rate cut. All sub-components, factory input and output prices as well as inflation came in lower than expected. Given the slowdown in the housing market, it becomes more imperative for The Bank of England to act sooner rather than later.
Daniel Casali, chief investment strategist at wealth manager Evelyn Partners, said:
The latest inflation reading signals that restrictive monetary policy is working. Importantly, service producer price inflation (a leading indicator for consumer services inflation) has also started to trend lower, suggesting further disinflation ahead in labour-intensive sectors. This improvement in the underlying inflation picture strengthens the case for rate cuts, though the Bank of England’s Monetary Policy Committee (MPC) remains cautious.
February remains the base case for a rate cut, with December only possible if further data surprises materialize on the downside.
At the same time, labour market conditions are weakening. Unemployment has climbed to 5%, its highest level in three years, and job vacancy rates are steadily declining. Wage growth has cooled from its summer peak, reducing the risk of second-round inflation effects. However, cost pressures have not disappeared entirely: the National Living Wage is projected to rise by around 4.2% in 2026, which could add some stickiness to services inflation, though it will be lower than the 6.7% rise in 2024.
Adding to this disinflationary backdrop, the upcoming Budget will include higher taxes, which will reduce household disposable income and dampen demand. This fiscal tightening complements monetary restraint, accelerating the path toward the Bank’s 2% inflation target. In short, this makes it harder for the MPC to justify holding rates at current restrictive levels deep into 2026. Shorter maturity gilts should benefit from lower base rates.
Rob Morgan, Chief Investment Analyst at Charles Stanley, said:
Evidence the UK’s inflation problem is subsiding more swiftly continues to mount with CPI coming in at 3.6% year-on-year for the month of October. This is significantly lower than the near-term plateau of 3.8% recorded in July through to September, all but sealing the deal for a December interest rate cut from the Bank of England.
Encouragingly, core CPI rose 3.4%, the slowest rate since March, and services inflation undershot Bank of England expectations slightly at 4.5%. There will be palpable relief in Threadneedle Street, and in Westminster, that inflation is now falling back having not breached the 4% level. The direction of travel should now continue into next year, in the absence of any surprises, allowing further cuts that relieve the pressure on households and businesses.
The recent rebound in UK price rises was a speedbump rather than a roadblock. Now we are on the other side of the hump, the BoE has the green light for the next rate cut at its December meeting. Other data is conducive to an interest rate reduction too. A significant slowdown in GDP for the third quarter indicates the economy has decelerated following a relatively bright start to the year. Meanwhile, cracks in the labour market have widened with unemployment ramping up to 5%, wage growth moderating, and hiring intentions dropping off.
It’s a picture of fading economic resilience that adds up to a 0.25% base rate cut in December with only the Budget standing in the way next week. And an inflationary curveball from the Chancellor’s fiscal announcements seems unlikely with lessons learned from last time around.
An increase in employer national insurance from April undoubtedly flowed into business costs and then onto consumers, so the Chancellor will be keen to avoid any further policies that further ignite price rises and weigh on growth. She will also be leaning into less inflationary measures to ease the pressure on household finances. But it’s still a tightrope to walk with an economy in a fragile state. Targeted raids on income tax, residential property, banks and gambling companies will likely be the order of the day to help fill the fiscal hole without upsetting the growth applecart.
Further out, a fiscal tightening from the Budget that minimises any inflationary impact should allow the Bank of England to make further cuts in the first few months of next year, helping support a weakening economy.
Daniela Sabin Hathorn, Senior Market Analyst at Capital.com, said:
After three months stuck at 3.8%, UK inflation finally managed to drop to 3.6% in October, the first decline in five months and a sign that the disinflation trend may be regaining momentum. Core inflation, which excludes volatile food, energy, alcohol, and tobacco components, also edged lower to 3.4%, suggesting that underlying price pressures are gradually easing. While the drop was modest, and below analyst forecasts, it reinforces the view that inflation has peaked and is slowly moving closer to the Bank of England’s 2% target.
Food and non-alcoholic beverage prices rose slightly, climbing from 4.5% to 4.9% year-on-year, indicating that households are still feeling pressure in essential spending categories. Service-sector inflation also remains sticky, which will likely keep the BoE cautious about declaring victory over price growth too soon.
Overall, the October data has painted a mildly encouraging picture, one that suggests that inflation is cooling, but progress remains uneven. For the Bank of England, this easing provides some breathing room to start cutting again in December, to which markets are currently assigning an 80% probability.
In markets, the report was greeted with quiet optimism: sterling eased slightly, gilt yields dipped on expectations that the BoE’s next move will be a cut, and UK equities saw some moderate upside after the release despite the heavy selloffs faced over the past few days. In short, the figures suggest that inflation’s grip on the UK economy is slowly loosening, but the path back to target will likely remain gradual and bumpy.
Abhi Chatterjee, Cheif Investment Strategist, Dynamic Planner said:
The latest inflation figures from the UK offer a much-needed, if modest, respite from the corrosive cost-of-living crisis. The headline Consumer Price Index (CPI) eased to 3.6% in October, a welcome deceleration from the 3.8% recorded in September. This trajectory aligns neatly with the Bank of England’s forecasts, allowing the Governor to breathe a collective sigh of relief and tentatively contemplate a clearer path toward eventual interest rate cuts. However, a closer reading of the data suggests that celebratory corks should remain firmly corked.
While falling energy prices and a significant downward contribution from Housing and household services provided the main drag on the overall rate, the persistent squeeze on household budgets is starkly exposed by food and non-alcoholic beverages, which saw a worrying 4.9% price increase, barely alleviating the pain on the average consumer. Crucially, Services inflation, the key barometer of domestic wage and pricing persistence, also edged down to 4.5% from 4.7%. This is significant, bolstering the Chancellor’s confidence ahead of the November budget and providing the political oxygen needed for potential “feel good” fiscal measures. While this movement allows both monetary and fiscal policymakers a moment of respite, trepidation is warranted.
We can hope that “peak inflation” is definitively behind us, but a sustained recovery requires more than just a few favourable readings. A lasting return to economic health hinges on a period of prolonged good news coupled with a decisive uplift in UK investment to truly move the dial beyond mere stabilisation and onto a convincing path of structural growth. The woods maybe thinning, but we are far from the rolling fields and clear skies.
