UK inflation drops to 4.6% in October, UK stocks up, pound down

Annual inflation in the UK cooled more than expected to 4.6% in October, the lowest rate in two years, according to new data from the Office for National Statistics. The drop was driven largely by a fall in household energy prices compared to a year earlier, offering some relief to Britons struggling with the cost-of-living crisis.

Inflation was forecast to come in at 4.8% by analysts polled by Trading Economics, but managed to beat expectations. However, core inflation, which excludes volatile food and energy prices, only fell slightly to 5.7%. This persistent underlying inflation indicates the crisis is far from over.

Nicholas Hyett, Investment Analyst at Wealth Club, says the fall in headline inflation should ease pressures and provide mortgage holders relief from further interest rate hikes. But he cautions that until core inflation shows sustainable declines, the Bank of England still has its finger on the trigger.

The inflation drop gave UK stocks a boost, with the FTSE 100 index up 1.36% in early trading Wednesday. But the pound dipped 0.3% against the dollar to $1.246 as currency markets absorbed the data.

While the fall in inflation is a positive development, analysts say more is needed on the core level for the BoE to relax its stance. Annual CPI remains well above the central bank’s 2% target. For now, the threat of further rate hikes looms as the UK works to return inflation to normal levels.

Wednesday’s data provides some hope that the worst may be over, but the cost-of-living crisis still has some way to go before Britons can breathe easy.