UK Inflation Remains Unchanged, Raising Hopes for Rate Cut

UK inflation has remained steady at 3.8% year-on-year in September, following a month-on-month decline, according to the Office for National Statistics (ONS). This unexpected development has sparked hopes for a potential Bank of England rate cut. The consumer price index (CPI) remained unchanged, while core CPI, which excludes volatile prices such as food and fuel, dropped to 3.5%. The ONS Chief Economist, Grant Fitzner, explained that the largest upward drivers of inflation came from petrol prices and airfares, but were offset by lower prices for recreational and cultural purchases. Meanwhile, food prices fell for the first time since May last year.

Key Takeaways:

• UK inflation remains unchanged at 3.8% year-on-year in September, according to the ONS.
• Core CPI dropped to 3.5%, while services CPI remained flat at 4.7%.
• Food prices fell 0.2% month-on-month, mirroring declines seen in Europe.
• Grant Fitzner, ONS Chief Economist, highlighted that petrol prices and airfares were major upward drivers, while lower prices for recreational and cultural purchases offset the gains.
• Monica George Michail, associate economist at the National Institute of Economic and Social Research, believes the Bank of England will remain cautious and pause interest rate cuts at least until February.
• Economists George Lagarias and Matt Swannell expect inflation to cool gradually through Q4 and into 2026.
• Swannell notes that the main source of upward pressure on inflation comes from 'base effects' in the fuel category, but expects this to fade from October.

Statistics:

• UK inflation: 3.8% year-on-year (September).
• Core CPI: 3.5%.
• Services CPI: 4.7%.
• Food prices fallen 0.2% month-on-month.
• Petrol prices rise of 0.2% month-on-month.
• Airfares major upward driver of inflation.

Sources:

• Office for National Statistics (ONS)
• National Institute of Economic and Social Research (NIESR)
• Forvis Mazars
• EY ITEM Club
• WPI Strategy