UK Inflation Drops to 3.6% in October 2025, Paving Way for December Rate Cut

The Bank of England is now widely expected to cut interest rates in December after the Office for National Statistics revealed UK inflation fell to 3.6% in October 2025 — the lowest level in four months and a clear signal that price pressures are finally easing. The data, released at 7:00 AM UTC on November 19, 2025, matched forecasts from economists and surprised no one — but that doesn’t make it any less meaningful. For households still feeling the pinch of high mortgage payments and grocery bills, this is the first real sign in over a year that the worst may be behind them. The drop from 3.8% in July, August, and September wasn’t just a blip. It was a trend accelerating — and now, the central bank has what it needs to act.

Energy Price Cap Drives Biggest Drop

The most dramatic change came from energy. Ofgem’s October 2025 price cap adjustment slashed gas inflation from 13% to 2.1% and electricity from 8% to 2.7%. That single move knocked nearly a full percentage point off the overall inflation rate. It wasn’t just luck — it was policy working as intended. For the first time since early 2023, households saw their utility bills stabilize instead of spiking. The Consumer Prices Index including owner occupiers' housing costs (CPIH) fell to 3.7%, its lowest since November 2021, largely because housing costs — which had been rising at 5.2% annually — slowed to just 4.8%. That’s nine months in a row of cooling OOH inflation, the slowest since August 2023.

Services and Food: The Last Hurdles

But the picture isn’t all rosy. While goods inflation dropped to 2.6% — its lowest since June — services inflation remains stubbornly high at 4.5%. That’s the part that keeps the Bank of England awake at night. Wages are still climbing. Haircuts, gym memberships, and restaurant meals aren’t getting cheaper. And food inflation? It ticked up to 4.9% from 4.5% in September. Families are seeing more expensive milk, bread, and meat at the checkout. The Office for National Statistics noted this was partly due to weather disruptions in Spain and Morocco affecting tomato and pepper supplies. It’s a reminder: inflation isn’t a monolith. Some parts are healing. Others are still feverish.

Market Reactions and Analyst Expectations

Wall Street and the City reacted instantly. Barclays PLC, HSBC Holdings PLC, and Goldman Sachs Group Inc. all upgraded their forecasts for a rate cut. The consensus? December 17, 2025. That’s when the Bank of England’s Monetary Policy Committee meets next — and for the first time since March 2020, they might actually lower the base rate from 4.5%. Traders are now pricing in a 78% chance of a 0.25% cut, up from just 32% a month ago. The Bank of England itself had predicted inflation would dip below 4% by year-end. They hit that target a full month early. That’s not just good data — it’s a mandate to pivot.

What This Means for Borrowers and Savers

For homeowners with variable-rate mortgages, a rate cut could mean hundreds of pounds saved annually. Over 2 million households are still on tracker deals tied to the Bank’s base rate. A 0.25% cut might not sound like much, but on a £250,000 mortgage, it’s £50 a year — and that’s money that goes back into the economy. Savers, meanwhile, will groan. Deposit rates have already been falling since summer. A cut will make it even harder to earn more than inflation on cash. But here’s the twist: the real win isn’t the rate cut itself. It’s the signal. After years of uncertainty, the Bank of England is finally showing it believes inflation is under control. That’s confidence. And confidence, more than any number, rebuilds trust.

What’s Next? The December Decision

The next meeting on December 17, 2025, won’t just be about inflation. The Bank of England will also review wage growth, unemployment, and consumer spending. If those numbers hold — and early indicators suggest they will — a cut is almost certain. But the bigger question is this: will it be one cut, or two? Some analysts, including those at Barclays, now think a second cut could come in February 2026. Others warn against rushing. Remember 2023? The Bank of England cut too early once — and inflation bounced back. This time, they’re being cautious. They’ll want to see at least two more months of sub-3.5% inflation before they’re fully convinced.

Historical Context: How This Compares

The last time inflation fell this low — and this fast — was in early 2020, just before the pandemic hit. Back then, the Bank slashed rates to 0.1% in response to economic collapse. This time, the drop is organic. It’s not crisis-driven. It’s the result of higher rates finally working their way through the system. The 2021-2023 inflation surge — fueled by supply chains, Brexit, and energy shocks — is finally fading. And while the Office for National Statistics still flags risks from global food prices and public sector pay deals, the momentum is clear. The UK isn’t out of the woods — but it’s no longer lost in them.