UK inflation holds steady at 3.8% in September, defying forecasts

The UK’s annual inflation rate remained unchanged at 3.8% in September, according to data released on Wednesday by the Office for National Statistics (ONS).

The figure came in below economists’ expectations of 4%, easing concerns that price pressures were reaccelerating.

It marks the twelfth consecutive month that inflation has stayed above the Bank of England’s (BoE) 2% target.

Despite holding steady, the UK continues to record the highest inflation rate among G7 nations.

“A variety of price movements meant inflation was unchanged overall in September,” said Grant Fitzner, chief economist at the ONS.

The BoE had projected earlier this year that inflation would peak around 4% in September before beginning a gradual decline through 2025.

Food prices ease while fuel costs edge higher

The latest data brought some relief to consumers, with food prices falling by 0.2% month-on-month — the first decline since May 2023 — as supermarkets increased discounting.

On an annual basis, food inflation eased to 4.5% from 5.1% in August, marking the slowest pace since March.

Core inflation, which strips out volatile categories such as energy, food, alcohol, and tobacco, slipped slightly to 3.5% from 3.6% in the previous month.

Economists viewed this as a positive signal for underlying price trends.

The moderation in food prices offset upward pressures from petrol and airfares, which rose due to smaller price declines compared with last year’s levels.

September’s inflation figure carries additional weight because it is traditionally used to determine increases in welfare benefits from April next year.

Policy outlook: cautious optimism for the Bank of England

The September reading will be the final inflation print before the BoE’s next policy meeting on November 6.

With inflation still nearly double the target and economic growth subdued — GDP rose just 0.1% in August — analysts say the central bank is likely to maintain its benchmark rate at 4%.

The BoE’s Monetary Policy Committee is also expected to tread carefully ahead of the government’s Autumn Budget on November 26.

Chancellor Rachel Reeves has hinted at potential tax rises and selective spending cuts, which could reduce inflationary pressures over time.

Reeves has also suggested that she may cut the VAT rate on energy as part of targeted cost-of-living relief measures, a move that could help bring inflation closer to target.

“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,” Sanjay Raja, Deutsche Bank’s chief UK economist said in a CNBC report.

Raja added:

While inflation’s plateau offers some respite, economists warn that progress toward price stability will remain slow, with households continuing to feel the strain of elevated costs heading into the winter months.