UK inflation held steady at 3.8% in September, cooler than expected

The UK’s annual inflation rate was unchanged at 3.8% in September, a surprising reading after economists and the Bank of England had expected prices to rise last month.

Figures released by the Office for National Statistics (ONS) on Wednesday mean the rate has now been unchanged for three consecutive months.

The Bank of England predicted earlier this year that the consumer price index would rise to 4% in September – double the central bank’s target – before cooling gradually next year.

September core inflation, which excludes more volatile energy, food, alcohol and tobacco prices, rose 3.5% year-on-year in September, up from 3.6% in August.

“A range of price movements meant that inflation was broadly unchanged in September,” ONS chief economist Grant Fitzner commented on Wednesday.

“The biggest upward drivers came from petrol prices and airfares, where price declines moderated from last year. This was offset by lower prices for a range of recreational and cultural purchases, including live events,” he noted.

“Prices for food and non-alcoholic beverages also fell for the first time since May last year,” Fitzner added.

The BOE on Nov. The last inflation data to be released before the next meeting on the 6th, economists said it was unlikely that bank policymakers would cut the benchmark interest rate from 4% while inflation remained high, despite lower growth. The latest statistics show that The British economy expanded by 0.1% month-on-month in August.

Economists say the BOE is likely to remain cautious as the CPI data lacks movement in either direction.

“Inflation nearing 4% should serve as a wake-up call to markets, which will keep prices in check for two more rate cuts next year,” George Brown, senior economist at Schroders, noted on Wednesday.

“The combination of disappointing productivity and sticky wage growth threatens to push higher inflation into the UK. We expect the Bank of England to keep interest rates on hold until the end of 2026 and we would not rule out further rate hikes,” he said.

The BOE’s Monetary Policy Committee (MPC) is likely to be cautious about intervening in interest rates ahead of the government’s autumn budget on November 26, in which Finance Minister Rachel Reeves could announce tax increases as well as spending cuts, which could be inflationary.

Reeves has also hinted at taking it “Targeted Action” to address cost of living challenges.And there is speculation that it may cut the rate of VAT charged on energy, which could ease price pressures.

Any such targeted budget measures would have significant implications for the inflation outlook, according to Sanjay Raja, chief UK economist at Deutsche Bank.

“News on destabilization measures has picked up pace. We will be closely watching any announcements on VAT changes along with fuel duty changes – both of which could impact our near-term forecasts,” Raja said in emailed comments.

“Currently, we see CPI at 3.4% per annum before decelerating to 2.6% per annum in 2026. The CPI will reach the target (2%) in 2027,” Raja added.

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