UK inflation falls to four-month low after energy price hikes ease

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “If you’re wondering what that warm breeze is, it’s the entire country heaving a sigh of relief at the news that inflation has fallen for the first time since March.

“The Bank of England had called the peak in September and prices are following the script.

“It should help ease the pressure on households, the Bank of England and mortgage borrowers.

“Savers may see rates ease a little, but it won’t take much effort to stay ahead of inflation.

“What’s moving prices? Energy prices powered the drop in inflation, as the new energy price cap turned down the dial. This feels counter-intuitive, because the energy cap rose in October.

“The key is that it rose less than it had a year earlier, so overall electricity prices are up just 2.7 per cent and gas prices 2.1 per cent.

“Energy prices have been the subject of Budget speculation that the government could try to ease some of the pain of higher prices for bill payers.

“If this comes to fruition, it will help keep a lid on inflation too.

“Hotel prices also helped push inflation down in October. Monthly prices tend to rise much less in the lull between the summer and the busy Christmas period, but this year they were even more sluggish than last year.

“Air fares also rose less than this time last year – especially in Europe. Both are clearly luxuries for most people, so there’s a risk that as belts get tightened, travel is squeezed out.

“Food prices proved less digestible. After falling the previous month, food inflation rebounded to 4.9 per cent. On a monthly basis, prices were up 0.5 per cent.

“Striking annual rises included beef and veal up 27 per cent, whole milk up 15.5 per cent and butter at 14.3 per cent.

“Cattle farmers are still feeling the financial impacts of a poor grass harvest – as well as increased labour costs throughout the production and sales process.

“For shoppers this will come as dismal news as the expensive Christmas season approaches. The last three months of the year tends to see people spend more, as they trade up and buy treats.

“Rising prices could mean families face a cut price Christmas – especially since the price of chocolate is also up 17.5 per cent.

“To make matters even tougher, the wider food and drink market, including alcoholic drinks, could end up getting pricier after the Budget if the Chancellor uses alcohol duty to raise the spirits at the Treasury.

“Petrol prices put the squeeze on drivers, with the average price of petrol rising 0.7p per litre and diesel up 1.2p per litre between September and October.

“This isn’t just an extra cost for drivers, it also feeds though into higher prices for anything that needs to be delivered.

“The pain may not be over yet either, because the Budget could bring changes to duty that mean even more pain at the pumps.

“What does it mean for mortgages? We’re reaping the spoils of a mortgage price war, with the best two-year fixed-rate deals closing in on 3.5 per cent.

“The banks were already factoring in today’s news, so it won’t move the dial in itself. However, competition is so fierce we can expect the banks to keep cutting the rates in an effort to stay on top.

“This will be a relief to anyone in the market for a remortgage in the near future, especially those coming off a 2-year deal.

“Those ending a 5-year fix will have more of a challenge on their hands, because rates back then were so low, so they will see their repayments rise.

“The plus side is that borrowers will have been sitting pretty on this rate while the rest of the market wrestled with higher monthly payments. The downside is that things could get less pretty from here.

“The HL Savings & Resilience Barometer shows that single homeowners will have an even bigger struggle.

“They have an average of just £73 left at the end of the month – compared to couples who own together who have £420. It means they have far less room to manoeuvre if their mortgage payments are on the way up.”