UK Core Inflation Rate MoM: October 2025 Release and Macro Implications
The UK’s latest Core Inflation Rate MoM print for October 2025, released on October 22, surprised markets by registering a flat 0.00%, well below the 0.20% consensus estimate and the prior month’s 0.30%. This pause in core inflation growth marks a significant shift in the inflation trajectory, with broad implications for monetary policy, financial markets, and the UK’s economic outlook. Drawing on data from the Sigmanomics database, this report contextualizes the latest reading against recent history and explores the macroeconomic consequences ahead.
Table of Contents
The UK’s core inflation rate, which excludes volatile food and energy prices, is a critical gauge of underlying price pressures. The October 2025 reading of 0.00% MoM signals a halt in inflation acceleration, contrasting sharply with the 0.30% rise in September and the 0.20% average over the past year. This stagnation comes amid a backdrop of tightening monetary policy and evolving fiscal dynamics.
Drivers this month
- Shelter costs, a major inflation driver, showed negligible change, contributing roughly 0.00 percentage points.
- Used car prices, which had previously added downward pressure, stabilized this month.
- Services inflation softened amid subdued consumer demand.
Policy pulse
The Bank of England’s 2% inflation target remains elusive, but the zero core inflation growth suggests easing underlying pressures. This reading may reduce urgency for further rate hikes, supporting a pause or slower pace in tightening.
Market lens
Immediate reaction: GBP/USD weakened 0.15% post-release, reflecting market disappointment over the lack of inflation momentum. UK 2-year gilt yields fell by 5 basis points, signaling reduced expectations for aggressive rate hikes.
Core inflation is a key macroeconomic indicator that influences monetary policy decisions and financial conditions. The UK’s 0.00% MoM core inflation contrasts with the 12-month average of 0.20%, highlighting a deceleration in price pressures. This follows a volatile first half of 2025, where monthly core inflation ranged from -0.40% in February to a peak of 1.40% in May.
Monetary Policy & Financial Conditions
The Bank of England has raised interest rates steadily since early 2025, with the base rate now at 5.25%. The flattening of core inflation may prompt the BoE to adopt a more cautious stance, balancing inflation control with growth concerns. Financial conditions have tightened, with credit spreads widening and mortgage rates rising, dampening consumer spending.
Fiscal Policy & Government Budget
Fiscal policy remains moderately expansionary, with government spending focused on infrastructure and social programs. However, the UK’s budget deficit narrowed slightly in Q3 2025, reflecting stronger tax receipts amid wage growth. The fiscal stance supports demand but is unlikely to fuel inflation significantly in the near term.
External Shocks & Geopolitical Risks
Global energy prices have stabilized, reducing imported inflation risks. However, ongoing geopolitical tensions in Eastern Europe and supply chain disruptions in Asia pose downside risks to growth and inflation stability.
This chart reveals a clear deceleration in UK core inflation momentum, reversing a three-month upward trend. The flat reading may indicate that inflationary pressures are stabilizing, reducing the likelihood of aggressive monetary tightening in the near term.
Market lens
Immediate reaction: UK gilts rallied modestly, with 10-year yields dropping 7 basis points, reflecting investor relief. The FTSE 100 dipped 0.30%, weighed by financials sensitive to interest rate outlooks.
Looking ahead, the UK’s core inflation trajectory will hinge on several factors. The Bank of England faces a delicate balancing act amid slowing inflation and persistent economic headwinds. We outline three scenarios:
- Bullish (30% probability): Core inflation remains subdued or declines further, enabling the BoE to pause rate hikes and support growth. Consumer confidence and spending recover, driving moderate GDP growth of 1.50% in 2026.
- Base (50% probability): Core inflation stabilizes near zero MoM, with occasional upticks due to supply-side shocks. The BoE maintains rates at current levels, cautiously monitoring labor market and wage trends.
- Bearish (20% probability): Inflationary pressures re-emerge from wage growth or external shocks, pushing core inflation above 0.30% MoM. The BoE resumes tightening, risking slower growth or recession.
Structural & Long-Run Trends
Long-term inflation dynamics in the UK are influenced by demographic shifts, productivity growth, and technological change. The recent moderation in core inflation aligns with a global trend of subdued wage growth and automation gains. However, Brexit-related trade frictions and labor shortages may sustain inflation risks over the medium term.
The October 2025 UK core inflation rate MoM reading of 0.00% signals a pause in inflation growth, offering some relief to policymakers and markets. While this eases immediate pressure on the Bank of England, vigilance remains essential amid geopolitical uncertainties and structural challenges. The inflation outlook is finely balanced, with risks on both sides. Investors and policymakers should prepare for a range of outcomes as new data unfolds.
Key Markets Likely to React to Core Inflation Rate MoM
The UK core inflation rate MoM is closely watched by currency, bond, and equity markets. Movements in inflation influence interest rate expectations, impacting asset prices and investor sentiment. The following tradable symbols historically track or react to UK inflation data:
- GBPUSD – The British pound vs. US dollar pair is sensitive to UK inflation and monetary policy shifts.
- FTSE100 – UK’s leading equity index reacts to inflation-driven changes in economic outlook and interest rates.
- HSBA.L – HSBC Holdings, a major UK bank, is impacted by interest rate changes linked to inflation.
- BTCUSD – Bitcoin often moves inversely to inflation expectations and real yields.
- EURGBP – Euro vs. British pound reflects relative inflation and policy divergences between the UK and Eurozone.
Extras: Core Inflation vs. GBPUSD Since 2020
| Year | Avg Core Inflation MoM (%) | GBPUSD Avg |
|---|---|---|
| 2020 | 0.15 | 1.29 |
| 2021 | 0.22 | 1.35 |
| 2022 | 0.35 | 1.21 |
| 2023 | 0.18 | 1.25 |
| 2024 | 0.20 | 1.28 |
| 2025 (YTD) | 0.19 | 1.30 |
Insight: GBPUSD tends to strengthen when core inflation rises, reflecting expectations of tighter monetary policy. The recent flat inflation reading correlates with a mild GBP depreciation.
FAQs
- What does the UK Core Inflation Rate MoM indicate?
- The UK Core Inflation Rate MoM measures monthly changes in prices excluding volatile items, showing underlying inflation trends.
- How does the latest 0.00% reading affect monetary policy?
- A flat core inflation suggests easing price pressures, potentially reducing the Bank of England’s need for further rate hikes.
- Why is core inflation important for investors?
- Core inflation influences interest rates, bond yields, and currency values, affecting investment returns and risk assessments.
Takeaway: The UK’s October 2025 core inflation pause signals a critical juncture. Policymakers face a balancing act amid easing price pressures and persistent uncertainties. Market participants should prepare for a range of inflation outcomes as new data emerges.
The October 2025 core inflation rate MoM of 0.00% contrasts with September’s 0.30% and the 12-month average of 0.20%. This marks the first month without core inflation growth since February’s -0.40%, signaling a potential inflection point.
Historically, core inflation spikes in May (1.40%) and April (0.50%) reflected temporary supply shocks and base effects. The current flat reading suggests these pressures have abated, aligning with a broader global trend of easing inflation.