UK (Parliament Politics Magazine) – UK inflation stayed at 3.8% in September, with slower food price rises balancing higher costs in transport and leisure activities.
As reported by The Guardian, UK inflation held steady at 3.8% in September, surprising analysts and providing relief to Chancellor Rachel Reeves ahead of next month’s budget.
What did the Office for National Statistics say about UK inflation holding at 3.8%?
The ONS reported that Britain’s consumer price inflation remained unchanged in September, matching levels seen in August and July.
City forecasts had predicted inflation to hit 4%, yet the ONS said higher transport costs were offset by cheaper food and slower price growth in recreation and culture, including theatre and concerts.
The ONS posted on X,
“The Consumer Prices Index (CPI) rose by 3.8% in the 12 months to September 2025, unchanged from August 2025. The September, August and July 2025 figures were the joint-highest recorded since January 2024, when the rate was 4.0%.”
The Consumer Prices Index (CPI) rose by 3.8% in the 12 months to September 2025, unchanged from August 2025.
— Office for National Statistics (ONS) (@ONS) October 22, 2025
The September, August and July 2025 figures were the joint-highest recorded since January 2024, when the rate was 4.0%.
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For the 12th month running, the consumer price index remained higher than the government’s 2% target.
After the figures were released on Wednesday, hopes grew that the Bank of England could cut interest rates earlier, prompting markets to move their first quarter-point reduction to February instead of March.
Increasing food costs, partly linked to climate factors, have raised concern, but annual food price inflation fell to 4.5% in September from 5.1% in August, its first slowdown since March.
The ONS reported that slower price growth in the recreation and culture sector, including theatre and cinema, also helped ease inflation. It said higher transport costs, particularly for petrol and flights, rose 3.8% annually, up from 2.4% in August.
Experts said the lower-than-expected inflation reading is likely to reignite speculation that the Bank of England could cut interest rates again before the end of 2025.
What did Rachel Reeves say about tackling rising costs ahead of the November budget?
Rachel Reeves stated,
“I am not satisfied with these numbers. For too long, our economy has felt stuck, with people feeling like they are putting in more and getting less out.”
She said,
“That needs to change. All of us in government are responsible for supporting the Bank of England in bringing inflation down.”
Last week, the chancellor confirmed she will introduce policies to help reduce rising costs affecting citizens ahead of the budget.
Her remarks came after the Bank of England warned that “administered” prices, such as energy bills and transport fares, are pushing consumer costs higher.
The chancellor plans to meet cabinet ministers on Thursday to review departmental actions to tackle increasing costs.
Ms Reeves said economic pressures from Brexit and austerity have forced her to take action to balance the books in next month’s budget.
Ahead of the budget, she signaled a revision in growth forecasts from the Treasury’s independent watchdog, the Office for Budget Responsibility.
She added,
“The OBR, I think, are going to be pretty frank about this – that things like austerity, the cuts to capital spending and Brexit have had a bigger impact on our economy than was even projected back then. That is why we are unashamedly rebuilding our relations with the EU to reduce some of those costs, that in my view were needlessly added to businesses since 2016 and since we formally left a few years ago.”
What did Paul Dales say about UK inflation and future interest rates?
Paul Dales, chief UK economist at Capital Economics, stated,
“CPI inflation was lower than feared in September, as it stayed at 3.8% rather than rising to 4.0% or above. We doubt this will prompt the Bank of England to cut interest rates from 4% in November. But it increases the chances of the next cut happening by February in line with our forecast and it supports our view that interest rates will be reduced to 3% next year.”
He said,
“What’s more, this will probably be the peak in inflation. Our forecast is for CPI inflation to fall to 3.5% or below in October, not least due to the declines in utility and fuel prices that we already know about. Food price inflation may yet rise further, perhaps back above 5.0% by December, but there are… good reasons to expect it to fall back next year.”
Mr Dales added,
“And if we’re right in thinking that weak employment will significantly weigh on wage growth next year, then CPI inflation may surprise most people by falling to 2.0% by the end of next year.”
What did Rob Wood say about UK inflation and December rate cuts?
Rob Wood, chief UK economist at Pantheon Macroeconomics, said unexpected falls across inflation components raised the chances of a Bank of England rate cut in December.
He stated,
“September was likely the peak in this inflation hump, and it came in 20bp weaker than the monetary policy committee [MPC] and we expected. 3.8% inflation is still uncomfortable territory for the MPC, nearly double their target, and we expect the path down to 2% to be protracted.”
Mr Wood said,
“Some caveats mean we need to be cautious with this release. CPI was collected late, on September 16, compared to the September 9 date we and we think the market expected, which will have weighed on air fares and hotel prices. Underlying services inflation remains close to 4% and surveys suggest it will stay there at least until the spring. Erratic movements in some components, and a surprise in rents that the MPC look through, explain some of the downside.”
He added,
“But those caveats fail to over-ride the dovish news completely. So the five doves on the committee will likely take heart. A rate cut by December looks likely now. We still think the MPC will skip November—the growth data and stabilising jobs suggest they can afford to wait still—and the 26 November budget also seems forth waiting for, as well as another round of inflation data. We’ll chew over the data in detail today, but our initial reaction is that we will likely bring forward our rate cut call from February to December. We’re not throwing in the towel on our structural hawkish views, as we say we think the path down for inflation will be protracted. But the doves on the MPC will want to lower rates if they can.”
What did the IMF and Bank of England say about UK inflation and upcoming rate decisions?
The International Monetary Fund last week forecast that UK households will face the highest inflation in the G7 this year and in 2026.
Members of the Bank of England’s nine-person monetary policy committee have raised concern over persistent inflation, with no rate cut expected on 6 November ahead of Reeves’s budget, and the final meeting of 2025 set for 18 December.
The Bank of England’s August forecast shows that inflation would hit 4% in September and ease toward its 2% target over the next year.
Which taxes could see changes in the UK Budget 2025?
Ahead of the UK Budget on 26 November 2025, property taxes and inheritance tax are expected to be targeted. Property taxes may see a new annual levy on high-value homes, a capital gains tax on expensive primary residences, and National Insurance applied to rental income.
Inheritance tax could involve extending the nil-rate band freeze and tightening gifting rules, such as longer time limits or lifetime caps.
