"The drop in inflation was partly driven by a 7% reduction in the Ofgem price cap, compared to a 25% increase in October last year."
CPI inflation rose by 4.6% in October, the lowest rate in two years, largely thanks to a fall in energy prices.
The figure is below economists' expectations and means that the Government has now delivered on its promise to halve inflation from its 10.7% starting point by the year end.
The latest figures from the ONS show that on a monthly basis, CPI did not change in October 2023, compared with a rise of 2.0% in October 2022.
Core inflation came in at 5.7% in the 12 months to October 2023, down from 6.1% in September.
Daniel Casali, chief investment strategist at wealth management firm Evelyn Partners, commented: "The downward trend in inflation is continuing apace according to this latest monthly reading. A year on from annual inflation of 11.1% in October 2022, the headline rate has since decelerated by 6.5 percentage points, with much of that coming from lower energy prices in the transport fuel and household gas and electricity categories.
"Today’s CPI figure supports the narrative that we have reached the end of the Bank of England’s rate hike cycle with the base rate at 5.25%. There is conflicting opinion within the Bank’s Monetary Policy Committee as to when rate cuts will occur, with the BoE Chief Economist Huw Pill hinting at rate cuts sooner than expected. However, Governor Andrew Bailey has downplayed these comments and reiterated the need to reduce inflation to the target level of 2%. The futures’ market expects base rate cuts around the second quarter of 2024."
George Lagarias, chief economist at Mazars, said: “CPI receding at manageable levels probably puts the nail on the coffin of this rate hike cycle. We could begin to see the end for this inflation wave, especially if we don’t experience higher energy prices in the next few months. Lower inflation is consistent with the sluggish consumption data of the past two months. As such, one questions still looms large: will the economy that has succeeded in bringing inflation down to more manageable levels, also achieve to keep growth above the recession line?"
Simon Webb, managing director of capital markets and finance at LiveMore, commented: “After two months of no movement in inflation, it is good to see the October figures showing a significant fall to 4.6%. Inflation is now well under half of what it was a year ago at its peak of 11.1% but it still has some way to go to reach the 2% target.
“The drop in inflation was partly driven by a 7% reduction in the Ofgem price cap, compared to a 25% increase in October last year. Those high hikes in energy costs last year now fall out of the annual inflation figures.
“Core inflation, which removes food and energy prices, was also down to 5.7% from 6.1%, and plays a key part in the Monetary Policy Committee’s interest rate decisions.
“This latest inflation data should be enough to keep base rate at 5.25% although there is still division in the MPC. The Bank of England’s chief economist Huw Pill recently suggested there was no need to increase base rate as inflation is steadily falling. However, governor Andrew Bailey believes it is too soon to say that rate rises have ended.”
Adam Oldfield, chief revenue officer at Phoebus Software, added: “Bringing inflation down was the intent from the Bank of England when it first started increasing the bank base rate and we are, at last, getting to see the impact. Today’s headline figure will no doubt be one that gives a level of confidence to many. Nonetheless, the headline that inflation is coming down is great, but it does still mean prices are rising over double the amount that government is happy with.
“On the flip side wages are out pacing inflation, which should put more borrowers on a better footing. However, we saw last week that arrears continue to increase, and the governor has already stated that the base rate won’t be coming down any time soon, even if inflation continues to fall. So, next week’s budget is a huge opportunity for the Chancellor to step in and bring some much-needed help to a housing market that should be contributing massively to the UK economy. How far he will go and what impact anything he does introduce will have, is up for debate. We have seen too many times how successive governments use the UK’s appetite for home ownership as a bargaining tool as we get closer to a general election. Will this government be any different?"
