After the UK’s annual inflation rate fell sharply in October to its lowest rate in two years, investment managers assess the impact.

Latest data released this week by the Office for National Statistics shows that UK headline inflation dropped unexpectedly to 4.6 per cent from 6.7 per cent in September, indicating that the Bank of England will keep interest rates at current levels in November.

This was due to lower energy prices. The government said its pledge to halve inflation by the year has been met early.  The longer-term target is 2 per cent.

Core inflation, which strips out food and energy prices, fell more moderately from 6.1 per cent in September to 5.7 per cent. With UK interest rates currently standing at a high of 5.25 per cent, the Bank of England (pictured) is expected to hold interest rates at the current level.

Here are some reactions from investment managers to the latest news.

Daniele Antonucci, chief investment officer at Quintet Private Bank (parent of Brown Shipley)
“After the US, it’s now the turn of the UK surprising to the downside with its inflation numbers. While upside risks to interest rates exist in the UK, as the level of inflation remains well above the Bank of England’s target, today’s numbers strengthen the case for a pause and, likely, the end of the rate hiking cycle.

“Both headline and core inflation were lower than expected, albeit not yet consistent with the central bank’s price stability target. We expect the Bank of England to hold interest rates at 5.25 per cent, before cutting them slowly over the course of 2024. This trend looks more general: we think that the US and the eurozone have reached the peak in interest rates, too.

“We are sticking with our current portfolio positioning, holding more government bonds and less riskier bonds relative to our long-term allocation. Within equities, we hold mostly large, high-quality companies across the US and Europe, which are less volatile than the broader market. Hence, when volatility increases, these tend to perform better than the overall market.”

Nicholas Hyett, investment analyst, Wealth Club
"At the headline level at least, these numbers are cause for celebration. A substantial fall in inflation should help ease the cost-of-living crisis, while a pause in interest rate rises will be a huge relief to mortgage holders. Downing Street will be particularly pleased to wave goodbye to the UK’s status as the inflation nation, since it means that the Prime Minister's pledge to cut inflation in half is achieved a month ahead of schedule – although whether the government is entitled to celebrate a fall in global energy prices over which it has no control is rather dubious.

“It’s not all champagne and roses though. Core inflation, which measures domestically-generated inflation rather than moves caused by swings in global commodity prices, is falling but still stubbornly high. Some of that is probably down to lingering effects of higher energy and food prices earlier in the year – as it can take time for those pressures to make their way through the system. But, until core inflation starts to show sustainable falls, we’re not completely out of the woods and central bankers will have their fingers poised over the interest rate trigger.”

Julian Jessop, economics fellow at the free market think tank, the Institute of Economic Affairs
“The sharp fall means that inflation is back on track to the Bank of England’s 2 per cent target next year. This should slam the door on any further increases in interest rates and bring forward the timing of the first cut. The sharp drop also fulfils the Prime Minister’s target of halving inflation and removes at least one obstacle to tax cuts in the Autumn Statement. These are likely to focus on business taxes, with any big changes in personal taxes held back until the Budget in the spring.

“The government will claim that inflation would have been slower to fall if it had not taken tough decisions on fiscal policy, notably on public sector pay, spending and tax. But this is debatable. The drop in inflation mainly reflects the tightening in monetary policy, the global economic slowdown, and the decline in commodity prices, rather than anything the government has done.”

Andy Mielczarek, founder and CEO of SmartSave, a Chetwood Financial company      
“Any drop in the rate of inflation is welcome news, and many Britons might be feeling a sense of relief that the worst of the cost-of-living crisis could finally be behind us.  As consumers feel the pinch on their budgets loosen, they should take advantage of the opportunity to consider revamping their savings strategy. In particular, those holding significant sums in easy-access high-street savings accounts, many of which continue to offer paltry rates, could end up missing out on better returns in the months to come. 

“The onus is on savers to search carefully for the right product and provider. For instance, as inflation continues to fall, those feeling more confident about setting money aside in a fixed-term savings account are likely to achieve better returns than those in easy-access or current accounts. And looking beyond the high street remains crucial when shopping around for the most competitive rates." 

Jatin Ondhia, CEO of Shojin 
“November is shaping up to be a significant month, with inflation falling, a new-look cabinet, and an incoming Autumn Statement – this is a pivotal moment for people to reassess how they are managing their finances and consider how to best supercharge their savings and investments. Even as inflation falls, investors cannot afford to be passive; in this environment, it is important to scrutinise your portfolio and explore every available option, considering both traditional and alternative assets. 

“The political and economic landscape has shifted once again this past month, and investors’ risk tolerance and long-term financial goals may need to recalibrate too. What’s more, all eyes will now turn to Jeremy Hunt and next week’s Autumn Statement. Falling inflation is a boost to the Chancellor, and it will be intriguing to see what he pulls out of the famous red briefcase in the way of impactful policies aimed at fostering growth and galvanising the investment landscape – investors will certainly need to take note.” 

Amanda Aumonier, director of mortgage operations at Better.co.uk  
“A decrease in inflation would typically trigger the Bank of England to consider cutting interest rates. However, industry experts are anticipating that the current base rate is unlikely to change in the next year, suggesting that mortgage interest rates are likely to stabilise for the time being. Having said that, it's crucial to bear in mind that geopolitical uncertainties could impact the economy, so making precise predictions about what interest rates are going to do is always a gamble. 

“If you're thinking about buying your first home and wondering if now is the right time, remember that the perfect moment will never exist. The important thing is to avoid making decisions that could put you under financial strain. For numerous homeowners, the big question now is whether to find a new fixed-rate mortgage or explore the potential of a variable or tracker mortgage. Choosing a fixed-rate mortgage is a smart move if you like knowing exactly how much you'll pay each month and want to stick to a tight budget. But if you're okay with a bit of uncertainty and think interest rates might go down, a variable or tracker mortgage could save you money over time.”

James McManus, chief investment officer at Nutmeg, a digital wealth manager
“Today’s inflation data marks another significant milestone in the UK’s attempt to reign in spiralling price rises. In October 2022, headline inflation was over 11 per cent and the road ahead looked bleak. Lower-than-expected inflation is good news for consumers, it provides an additional boost to their spending power and will hopefully ease some of the day-to-day financial pressure. Pressure will also ease on the Bank of England and its battle with inflation, with the bank increasingly likely to hold interest rates steady into the new year.”