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Inflation fell to 4.6% as at end of October from 6.7% at end of September, this as a result of lower food and energy costs. This is the lowest rate of inflation for two years and core inflation, which does not include more volatile prices such as food and energy, fell to 5.7 per cent.

It means Rishi Sunak has hit his target of halving inflation after making the pledge in January, a time when it was running at over 10 per cent, despite this fall however, interest rates are still expected to stay at the current level into the new year, and we then expect to see rates starting to reduce.

Interestingly, this news comes on the back of US inflation falling to 3.2 per cent in October.


Why has inflation gone down?



The Bank of England said this month in its monetary policy report that the “main driver of the expected fall…. is a reduction in the Ofgem energy price cap, reflecting the decline in wholesale gas prices over the course of 2023.”

As a result of the change in the Ofgem price cap, the cost of gas fell by 31% for the year to October, compared to the rise seen in September. Electricity costs also fell 15.6%

However, the price of gas remains around 60% higher than it did in October 2021, with electricity about 40% higher, according to the ONS.

And despite the fall in energy costs, most households will likely be spending more on their bills as a result of less Government help. The Energy Price Guarantee has been removed alongside the additional £66 per month that was taken off households bills over last winter.



The rate of inflation for food and drink slowed but still remains higher at 10.1%. This is down from 12.2% in September and from the high of 19.2% in March.

This means that while prices for food are still going up, they are generally rising at a slower level.

The British Retail Consortium, the trade association for supermarkets and other retailers, said back in July that figures suggested food inflation had peaked, so it is unsurprising that the figure is continuing to fall and it is expected that it may be close to zero by the end of 2024.

However, this would only be the case should there be no further major problems beyond the conflicts in Gaza and Ukraine.


What does this mean for Rishi Sunak’s pledge?

The Prime Minister pledged to halve the rate of price increases when the figure stood at 10.1%. He has now achieved this although some economists say he can take little of the credit for the figure falling because the Bank already predicted this and it controls interest rates, which is the main tool for decreasing inflation.


What will happen to inflation going forwards?

It is expected that inflation will continue to fall although it is likely to slow in pace and could take some time before the Bank hits its 2% target. It said it expects it to reach these levels by the end of 2025.

Wages could impact this. They have continued to grow at one of the fastest paces on record in the three months to September, suggesting it will take even longer for the Bank to return to its inflation target of 2%.

Regular pay excluding bonuses was up 7.7% year-on-year in the three months to the end of September. This is down from a 7.9% increase last month but is still one of the biggest increases on record.


What does this mean for interest rates?

It is unlikely to make any difference to the current interest rate predictions.

Economists say the base rate will stay the same – at 5.25% – into the new year before hopefully falling in the latter half of 2024.

However, what happens will depend on geopolitical factors such as the Israel-Hamas war and the ongoing conflict in Ukraine.


What does this mean for mortgages, savings and pensions?



Mortgages are not directly affected by inflation, although many products are affected by the Bank of England’s base rate, which inflation influences.

However, currently lenders are dropping rates to increase competition in the market as less people are taking out loans amidst the current economic climate.

There are now rates of below 5%, although several come with high fees attached, and brokers are expecting rates to come down further in the coming months.



Meanwhile, high inflation is bad news for savers as it erodes the value of money held in the bank. Therefore, the lower the rate, the better the news.

However, experts believe we are “past the peak” for savings with most fixed now dropping below 6%. This means it is worth taking advantage of the best deals now.



The drop in inflation will be welcomed by pensioners who have been struggling in the face of the cost of living crisis over the past two years, especially those for whom the state pension makes up a large portion of their income.

They are in line for a potential 8.5% boost to their state pension next year under the triple lock mechanism though this figure is thought to have been swollen by the impact of bonuses made to NHS and civil service workers throughout the year.

Annuity rates remain close to the highs experienced in the aftermath of last year’s mini Budget so continue to deliver the best value we’ve seen in years. For instance, a 65 year old with a £100,000 pension can currently get up to £7,310 per year from a standard level single life annuity.

If interest rates are held in the face of falling inflation, then this settled period should continue and this can encourage those who had been considering purchasing an annuity but holding back for fear of missing out on a higher price the impetus to take the plunge.


For clarification of any points discussed above and any future independent advice regarding your own financial planning, please do contact us on 01626 833225 or email [email protected]

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The views and opinions contained herein are those of Loughtons Independent Financial Advisers and may not necessarily represent views expressed or reflected in other economic communications, strategies or funds.


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