UK inflation eases to 3.6% as energy pressures cool, but food costs continue to rise

Scotland’s business community is watching economic signals closely as UK inflation has fallen for the first time since March, dropping to 3.6% in the year to October, according to new figures from the Office for National Statistics (ONS).

The slowdown, driven largely by weaker energy price rises, brings an end to seven consecutive months of increases and has prompted renewed speculation that the Bank of England could cut interest rates as early as December. Analysts noted that the increase in services prices – a key indicator of underlying pressure – also came in lower than expected at 4.5%.

However, despite the easing headline rate, businesses and households continue to face pressure from rising food costs. Food price inflation climbed to 4.9%, with notable increases in bread, cereals, fish, potatoes, and sugar.

Chancellor Rachel Reeves described the fall as “welcome news”, but acknowledged that families and firms are still feeling the strain. She said next week’s Autumn Budget will include “targeted action” to help bring inflation down further and support the wider economy.

The government is understood to be considering options including cutting the 5% VAT rate on energy bills or reducing regulatory levies, though energy suppliers have warned that any relief must be balanced against the impact on public finances.

Prime Minister Keir Starmer also welcomed the fall while noting that “many are still struggling with the cost of living”. Meanwhile, the Conservative opposition blamed the government’s earlier decisions for “stoking” inflation and called for spending restraint in the Budget.

In Case You Missed It:

Exclusive: Majority of Scottish SMEs forecast growth despite rising costs and inflation pressures UK inflation holds steady at 3.8% but food costs climb for fifth month in a row Surge in UK inflation driven by soaring summer travel costs and food prices UK inflation holds steady at 3.8% as food prices ease

Economists say the latest figures strengthen the case for a potential pre-Christmas interest rate cut, with rates currently held at 4%. The Bank of England has signalled that the long-term trajectory is downward, though the headline inflation rate remains well above the Bank’s 2% target.

For Scottish businesses, the picture is mixed. While a softer inflation reading may ease borrowing costs in the months ahead, persistent rises in food prices and cautious consumer spending continue to impact sectors such as retail, hospitality, and leisure.

The next major economic test will come with the Autumn Budget, where tax and spending decisions could further influence interest rate expectations and confidence among firms.