People walk past independent retailers on the Old High Street in Folkestone, UK, on Friday, Oct. 17, 2025. Inflation has surged on food and energy costs this year, with figures forecast to show it hitting 4% in September double the 2% target.
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The U.K.’s annual inflation rate was unchanged at 3.8% in September, a surprise reading after economists and the Bank of England expected price rises to peak last month.
The data, released by the Office for National Statistics (ONS) on Wednesday, means the rate has now been unchanged for three months in a row.
The Bank of England had forecast earlier this year that the consumer price index would peak at 4% — double the central bank’s target — in September, before gradually cooling into next year.
September core inflation, which excludes more volatile energy, food, alcohol and tobacco prices, rose by an annual 3.5% in the year to September, down from 3.6% in August.
“A variety of price movements meant inflation was unchanged overall in September,” Grant Fitzner, chief economist at the ONS, commented Wednesday.
“The largest upward drivers came from petrol prices and airfares, where the fall in prices eased in comparison to last year. These were offset by lower prices for a range of recreational and cultural purchases including live events,” he noted.
“The cost of food and non-alcoholic drinks also fell for the first time since May last year,” Fitzner added.
The data is the last inflation reading the BOE has before its next meeting on Nov. 6, with economists saying it’s unlikely that bank policymakers will cut the benchmark interest rate from 4% while inflation remains high, despite lackluster growth. The latest data showed the British economy expanded by a lackluster 0.1% month-on-month in August.
Economists say the BOE is likely to remain cautious given the lack of movement in the CPI data in either direction.
“Inflation near 4% should serve as a wake-up call for markets, which continue to price in two more rate cuts next year, ” George Brown, senior economist at Schroders, noted Wednesday.
“High inflation is at risk of becoming entrenched in the U.K., due to a combination of disappointing productivity and sticky wage growth. We expect the Bank of England will keep interest rates on hold until the end of 2026 and we wouldn’t rule out its next rate move being upward,” he said.
The BOE’s Monetary Policy Committee (MPC) is also likely to be cautious about meddling with interest rates ahead of the government’s Autumn Budget on Nov. 26, in which Finance Minister Rachel Reeves could announce tax rises as well as spending cuts, which could be disinflationary.
Reeves has also signaled she would take “targeted action” to deal with cost-of-living challenges, and there has been speculation she could cut the rate of VAT charged on energy, a move which could also ease price pressures.
Any such targeted budget measures will have important implications for the inflation outlook, according to Sanjay Raja, Deutsche Bank’s chief U.K. economist.
“News reports around disinflationary measures have gathered momentum. We will also be paying close attention to any announcement on VAT changes alongside fuel duty changes — both of which could have material implications for our near-term forecasts,” Raja said in emailed comments.
“For now, we see CPI tracking at 3.4% year-on-year before slowing to 2.6% year-on-year in 2026. We expect CPI to land around target [2%] in 2027,” Raja added.
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