October was shaped by the Chancellor’s Autumn Budget, a further rise in inflation and continued pressure in bond markets. UK CPI inflation climbed to 3.5%, its highest in almost a year, while the Bank of England left Bank Rate at 3.75%, with no policy meeting scheduled during October. Chancellor John Healey delivered his Autumn Budget on 28 October, confirming a mix of near-term household support and tax changes due to take effect from 2027. Gilt yields remained elevated for much of the month before easing after the Budget, and the FTSE 100 ended October at 10,729. Central banks in the US, eurozone and Japan all kept interest rates on hold.
UK Policy
The Bank of England (BoE) did not hold a Monetary Policy Committee (MPC) meeting in October, so Bank Rate remained at 3.75%. In its most recent decision on 16 September, the committee voted 6-3 to hold, with three members favouring a 0.25 percentage point rise to 4%. The next MPC decision is scheduled for early November.
Inflation moved higher. Annual CPI inflation rose to 3.5% in the twelve months to September, up from 3.1% in August and its highest rate since October 2025. Transport costs, and motor fuels in particular, were the largest upward contributor. Core CPI, which excludes energy, food, alcohol and tobacco, rose to 2.8% from 2.6%, while services inflation increased to 3.7% from 3.4%. Goods inflation reached 3.2%, its highest since September 2023. The broader CPIH measure rose to 3.6% and RPI stood at 3.9%.
Household energy costs added to the picture. Ofgem’s energy price cap rose by 4% from 1 October, taking the illustrative annual cost for a typical household paying by Direct Debit from £1,663 to £1,723 for the period to 31 December.
UK Economy
UK GDP grew by 0.1% in August, a slowdown from the 0.4% recorded in both June and July. Production output rose 0.8%, services were broadly flat and construction edged down 0.2%. Over the three months to August the economy expanded by 0.7%, an eighth consecutive three-month period of growth, while output in August alone was 2.1% higher than a year earlier.
The labour market showed modest improvement. The unemployment rate fell to 4.7% in the three months to August, down 0.1 percentage points on both the quarter and the year, while the employment rate stood at 75.3%. The number of payrolled employees fell by 111,000 (0.4%) over the year to August, though it edged up by 1,000 between July and August. Annual regular pay growth was 3.7%, equivalent to real growth of around 0.6% once inflation is taken into account.
The Chancellor, John Healey, delivered the Autumn Budget on 28 October. Among confirmed measures, the planned reduction in the Cash ISA allowance was reversed, leaving it at £20,000, and there were no changes to tax on employment income or dividends. Tax rates on property and savings income are set to rise by 2 percentage points from April 2027. Announced support included a one-off £100 energy payment for around 20 million households in council-tax bands A to D in England, to be paid from January 2027 via local councils, and the removal of standing charges from household gas bills, which the government has said will happen in 2027, or as soon as possible afterwards; the cut in VAT on domestic electricity was extended to July 2027. Fuel duty was frozen for a sixteenth year, the national living wage is due to rise by 3.9% from April 2027, and the tax-free trading allowance will increase from £1,000 to £3,000.
Alongside the Budget, the Office for Budget Responsibility (OBR) said the government is forecast to meet its fiscal mandate with headroom of around £15 billion in 2029-30, rising to about £22 billion in 2030-31. Public sector net financial liabilities (PSNFL), the measure used to assess compliance with the debt rule, were forecast at 83.2% of GDP in 2026-27, while conventional public sector net debt remained near 95% of GDP. Government borrowing costs remained a key theme, with the 10-year gilt yield trading around 5.4% for much of the month and longer-dated yields reaching levels last seen in 1998. However, the 10-year yield eased below 5.3% following the Budget.
UK Market
The FTSE 100 rose around 1.2% over October, gaining 123.78 points to close at 10,729.78 on 30 October, its first monthly gain in three months.
Energy markets were again influential. Brent crude gained about 13.6% over the month (with US WTI up 15.2%) amid renewed supply-security concerns, including conflict involving Iran and the wider Middle East and reported Ukrainian strikes on a Russian refinery. Higher oil prices supported the index’s energy heavyweights but also fed through to the pump, with motor-fuel costs a significant driver of September’s rise in inflation. Elevated gilt yields continued to offer investors more competitive returns from lower-risk assets, tempering some of the relative appeal of dividend-paying equities.
Global Outlook
Central banks remained in focus internationally, with the three major developed-market central banks all holding rates. On 28 October, the US Federal Reserve kept its target range for the federal funds rate at 3.75-4.00% in a 10-2 vote, with two policymakers favouring a further increase. Chair Kevin Warsh noted that growth had strengthened but that inflation still remained above the central bank’s 2% target.
The European Central Bank (ECB) held its three key interest rates on 29 October, leaving the deposit rate at 2.50%. President Christine Lagarde also announced that she will step down on 7 February 2027, and markets interpreted the accompanying guidance as a hawkish pause. The Bank of Japan kept its short-term policy rate at 1.25% on 30 October in an 8-1 vote, the highest level since 1995, following earlier increases during the year.
In China, the official manufacturing PMI rose to 50.1 in September, up from 49.8 in August. This marked the first reading above the 50 point-threshold separating expansion from contraction since June. The broader picture remained mixed, however: nationwide fixed-asset investment fell 7.2% year-on-year in the first nine months of 2026; within that, industrial investment was down 2.8%, with manufacturing investment down 2.1% even as mining investment rose 3.2%.
The content in this article was correct on 06/11/2026.
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