UK inflation for the 12 months to October fell from 3.8% to 3.6%, driven by lower housing and energy price increases. This offers relief to both the Bank of England and chancellor Rachel Reeves ahead of the Autumn Budget. Markets now anticipate a December interest rate cut from the BoE to combat rising inflation risks.

Traders are increasingly betting on a fourth Bank of England rate cut on Dec. 18 following the latest inflation report. Interest rate swaps data show an 87% consensus in favor of a cut, up from 76% on Nov. 18. Morningstar’s UK economist expects a quarter-point rate reduction at the next BoE meeting.

October’s inflation data in the UK shows a trend of “disinflation”, with price rises slowing. Downward contributions from housing and household services, along with restaurants and hotels, offset upward contributions from food and non-alcoholic beverages. Gas prices rose by 2.1% compared to 13% in September 2025.

The Bank of England has made three interest rate cuts this year, taking rates to 4%. Traders and economists anticipate a fourth cut next month, aligning with expectations for four rate cuts in 2025. Outlook for rate cuts in 2026 remains uncertain, with investors currently not expecting further cuts in the first half of the year. Labor market conditions are weakening, with rising unemployment and declining job vacancies.

Read more at Morningstar: Falling UK Inflation Tees Up BoE Interest Rate Cut After Autumn Budget