UK inflation held steady at 3.8% for a third consecutive month in September, according to the latest figures from the Office for National Statistics (ONS), defying forecasts of a rise. While the data signals some stability, experts warn that stubborn price pressures, mounting government debt, and the prospect of tax hikes potentially coming in the budget next month, could deepen the UK’s economic challenges heading into winter. Here’s how analysts and financial experts have reacted to the latest figures and what these data might mean for interest rates and the economy.
Here’s how analysts and financial experts have reacted to the latest figures:
George Brown, Senior Economist at Schroders, said:
“Inflation near 4% should serve as a wake-up call for markets, which continue to price in two more rate cuts next year. High inflation is at risk of becoming entrenched in the UK, 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.
“Public borrowing figures suggest the Exchequer is experiencing the fiscal downside of this higher inflation – through increased government spending – without being equally compensated by higher revenues. Rather than simply restoring the £10 billion of fiscal headroom through a net tightening of around £25 billion, the Chancellor should consider going further. Building a bigger buffer would reduce the risk of needing to further course correct if growth and spending diverges again from the OBR’s forecast.”
Danni Hewson, AJ Bell head of financial analysis, comments on the latest UK inflation figures:
“Any good news on the inflation front must be seized upon, and the fact food prices actually fell in September is likely to be cause for celebration in struggling households. Staples like vegetables, milk, cheese and bread were all pared back a touch, though such tiny movements won’t make a huge difference to the overall bill when people reach supermarket tills.
“Everyone’s inflation experience is different and month to month changes must be viewed cautiously, especially when we know that farmers have had to deal with a dry and difficult summer. Inflation on goods also ticked up a bit and factory gate prices rose to 3.4%.
“But the impact of those increased labour costs could be beginning to wash through, and inflation is expected to have peaked and should now gradually ease back towards the Bank of England’s 2% target – though that is likely to take a significant amount of time.
“Today’s figures have also potentially given Bank of England rate setters a bit of wiggle room, with market expectations for a further quarter percentage point cut this year lifting even as the value of the pound slid against the euro and the dollar.
“For the chancellor these figures should be gingerly welcomed. It means benefits will likely be uprated next April by slightly less than had been expected and the cost of servicing all that debt will also be impacted by cooler inflation and the potential of further interest rate cuts. But 3.8% is still uncomfortably high after the past few years and inflation has proved incredibly sticky in the UK compared to other G7 countries.”
Steven Cameron, Pensions Director at Aegon, comments:
“Today’s inflation figure of 3.8%, unchanged since last month, is the final piece in the state pension triple lock jigsaw. The triple lock formula increases state pensions each year by the highest of price inflation (now confirmed as 3.8%), earnings growth (4.8%), or a minimum of 2.5%. This means next April’s increase should be 4.8%, in line with earnings growth.
“This should be good news for pensioners, representing an increase of 1.0% above inflation, providing a welcome boost to pensioner purchasing power from next April.
“However, while the Labour Government did commit to retain the triple lock, we do still need to wait for formal confirmation of the increase by the Secretary of State for Work and Pensions. We’re fast approaching the Autumn Budget, with the Chancellor already signalling difficult decisions ahead.
“The Chancellor has continually emphasised she wants to support ‘working people’. And as the state pension is ‘pay as you go’ rather than funded, it’s today’s workers through taxes and National Insurance who pay for today’s state pensions. Every 1% increase in the state pension costs around £1.1bn a year for all future years.
“While today’s pensioners are yesterday’s working people, if the Government decides to prioritise support for those currently working, could that mean a scaled back triple lock from next April?”
Commenting on the latest CPI data from the ONS, Abhi Chatterjee, Chief Investment Strategist said:
“The UK’s economic narrative has, for too long, been a unending litany of inflationary pressure and stagnation. Yet, the latest Consumer Price Index (CPI) figures offer a small, perhaps fleeting, reason for the Monetary Policy Committee (MPC) to exhale. Holding steady at 3.8%, the headline CPI rate—alongside a stubbornly sticky but also unchanged 4.7% in services inflation—came in below the Bank of England’s own forecasts.
“This unexpected moderation, driven by broad price decreases (notably in food) despite a rise in transport costs, provides a sliver of much-needed data support for the rate cuts that practically every sector of the economy is clamouring for. The focus now shifts squarely to the beleaguered MPC, which admittedly needs more evidence than just a datapoint to pivot. The incentive to do so may have been provided by the Chancellor’s pre-Budget promise of “targeted action around prices” to smooth the path for lower borrowing costs.
“The Autumn Budget comes sharply into focus. Speculation over funding—and thus potential tax rises—is already rife, posing the perpetual question: Can the government ease the cost of living without further burdening the taxpayer? While the economic landscape remains largely autumnal—all brown leaves and grey skies—this steady inflation print might just be the first ray of sunshine the MPC needs to justify unsticking the UK economy from the bog of high rates. A cautious, hopeful eye remains on the Chancellor and the Governor.”
Derrick Dunne, CEO of YOU Asset Management, also shared his reaction to this morning’s ONS data saying:
“On the face of it this is positive news that inflation has again failed to breach the 4% mark on the CPI measure, which undershoots many economists’ predictions for the September data. We should notionally now see price rises begin to slow materially into winter.
“But of concern is the fact that inflation has now not budged for three months. This reflects the ongoing stubbornness in price rises and underscores the challenge facing Government. With its debt increasing at the fastest pace in five years, high inflation is only going to reinforce its high cost of borrowing, piling further pressure on the Chancellor to raise revenues.
“This makes painful tax hikes all but inevitable as Reeves looks to plug gaps and meet spending commitments. What is also of concern is whether these new measures create yet more inflation and further reinforce the inflationary pressure on the economy. It is a vicious debt-driven doom loop.
“Households are clearly bracing for the Budget now too, with weak consumer activity and evidence of financial decisions being taken in haste ahead of fresh tax measures. The property market is suffering and business decision-making is being put on hold. The fact that the Budget has become so totemic to the economy’s activity is a clear signal that all is not well.
“Anyone who is unsure about how this could impact their personal finances should speak to a financial planner.”
Richard Flax, Chief Investment Officer at Moneyfarm, said:
“UK inflation came in at 3.8% in September, slightly below expectations but still well above the Bank of England’s 2% target. More notably, core CPI fell to 3.5%, marking a 0.1% decrease YoY, a modest but welcome sign that underlying price pressures may be easing. Despite this, inflation remains stubbornly high, reinforcing expectations that the Monetary Policy Committee will hold interest rates steady on November 6. With headline inflation nearly double the target, any talk of rate cuts remains premature.”
Luke Bartholomew, Deputy Chief Economist at Aberdeen, comments:
“Inflation was widely expected to pick up in this report so the fact that it hasn’t is a positive surprise for the Bank of England and markets. There might be some technical factors around airline prices that are helping this report, but more fundamentally last week’s labour market report also showed that wage growth is moderating. So on balance the UK’s inflation problem looks slightly less bad now than it did a few weeks ago. A rate cut in November may still prove to be too soon, but the prospect of a December rate cut has increased and we still expect significant easing over the next year.”
George Lagarias, Chief Economist at Forvis Mazars comments:
“We may be seeing the first evidence of inflation finally meeting resistance. Given expectations for an inflation uptick, it’s good news that it remained stable. Importantly, we are seeing prices down in food, beverages, recreation and culture. With unemployment rising, it is now more difficult for inflation to continue its stride upwards, and easier for the Bank of England to consider lowering rates.”
Kris Brewster, Director of Retail Banking, LHV Bank, said:
“Today’s inflation figure shows that price pressures remain stubborn, reminding households why it’s vital to make their money work harder. Now is not the time to leave hard-earned cash sitting idle. Whilst monetary policy remains volatile, moving your money into an interest paying current account is now another genuine option alongside shopping around for better savings rates.
“Despite a rise in precautionary saving, too often money is left sitting in low-interest current and savings accounts, losing value in real terms. To take on inflation, savers need to shop around for a better bank account that earns a return on their day-to-day money and best buy savings accounts with flexibility and convenience rather than accepting 0 per cent returns. Gone are the days when people should accept poor rates from their existing bank. You can now earn interest on every penny you deposit in a bank to combat the effects of inflation.”
Phoebus Software’s chief sales and marketing officer, Richard Pike, says:
“While it’s positive to see that inflation hasn’t risen as much as the markets were expecting, it remains stubbornly high, with the 12-month CPI expected to be 3.8% by the end of 2025, well above the Bank of England’s target of 2%. With the Bank taking a ‘gradual and careful’ approach to easing monetary policy, it’s likely to be next year now before we see a cut in the base rate. We’ve seen mortgage rates ticking up in recent weeks but the good news for homebuyers is that they remain substantially lower than a year ago.
“However, with growth and productivity weak, and UK businesses and households highly cautious, Rachel Reeves needs to pull a rabbit out of the hat in the upcoming budget to balance the books without fuelling further inflationary pressures with potential tax rises.”
Matt Harrison, Customer Success Director at Finova Broker said:
“It might be sticky but inflation holding steady – and not hitting the Bank of England’s 4 per cent forecast – is a pleasant surprise.
“Rachel Reeves has warned that her Autumn Budget has required some ‘tough decisions’, but it’s crucial now that offsetting measures are introduced to avoid further inflationary damage from whatever tax amendments the budget is due to trigger.
“While many looking to buy or sell wait with bated breath for the budget’s outcome, its important the property market keeps transactions moving as fast as possible. In the current climate, brokers must look beyond the best interest rates to lenders that can deliver in terms of speed and service. Until the budget dust settles and we get some good news from the Bank of England, locking transactions in with those who are willing to take the risk will be key.”
Simon Webb, managing director of capital markets and finance at LiveMore, comments:
“The fact that inflation has held steady this month will be welcome news for households suggesting that the Bank of England’s cautious approach is continuing to pay off. Stability is exactly what the markets were hoping for, and it reinforces expectations that price pressures are gradually being brought under control.
“The Bank will likely remain measured in its approach to base rate cuts, until there’s sustained evidence that inflation is on a clear downward path. For the later life lending market, this period offers an opportunity for borrowers to review their options and take advantage of a more settled outlook. Many over-50s are making financial decisions that span decades, so it’s important to focus not only on short-term movements but also on long-term resilience, ensuring that older borrowers have access to flexible, sustainable borrowing solutions as the market stabilises.”
Rachel Geddes, Strategic Lender Relationship Director, Mortgage Advice Bureau is urging calm, saying:
“While inflation holding steady at 3.8% reflects the persistent pressures from political uncertainty and elevated costs, the mortgage market continues to remain resilient. In fact, many don’t realise they’re now in a prime position to get onto the property ladder – especially compared to this time last year, or even six months ago.
“A ‘keep calm and carry on’ approach is needed here. While inflation remains well above the 2% target, the housing market remains in a strong place, and more aspiring buyers than ever are realising that they can get on the ladder sooner.
“Affordability is improving, and customers are benefiting from higher average borrowing limits and a wave of new, innovative products. First time buyer appetite is strong, with a 9.7% uplift on the number of mortgage applications year-to-date.
“Wherever you are in your homebuying journey, your first step should always be to speak to a broker. Their expertise will help you to navigate the market and secure a deal that sutis your current financial situation.”
Simeon Willis, Chief Investment Officer at XPS Group said:
“Prices were steady over September this year and as a result the inflation rate for the 12 months has remained stable at 3.8%. This contrasts with the marked fall in 10-year inflation expectations so far over October.
The 12-month inflation print remaining flat on last month is a good sign that near term inflation may be on the turn. Longer term expectations which are driven by gilt supply and demand from long term investors, indicate that long-term inflation protection appears to be falling out of favour – another good sign.
Defined benefit pension scheme funding will generally have been positively impacted by the recent fall in inflation expectations.”
David Brooks, Head of Policy at leading independent consultancy Broadstone, said:
“Today’s inflation figures confirm wage growth as the driver of next year’s State Pension increase. The Triple Lock will once again come under scrutiny with a 4.8% rise in the State Pension raising serious questions about fairness and sustainability.
“While wage growth is a more defensible measure than inflation or the arbitrary 2.5% floor, the triple lock mechanism still lacks coherence. It guarantees pension increases even when economic conditions don’t justify them, and risks entrenching intergenerational inequality. A system that links pensions to earnings – or even broader economic growth – would be more equitable and better aligned with the realities facing working households, ensuring that generations are dealing with the current economic pressures together.
“We need a more balanced and targeted approach to pension policy – one that supports those in genuine need without placing unsustainable burdens on the public purse or younger generations. Reforming the triple lock should be part of that conversation.
“Many of those with index-linked Defined Benefit pensions will see their annual income uprated in line with this inflation figure, delivering another boost to their retirement finances.
“However, this will reignite debate on those retirees who are receiving pensions from schemes that don’t increase benefits for service before April 1997. This will remain a controversial topic and while members are receiving benefits as set out by the scheme, it is easy to have sympathy for those impacted where this causes hardship.”
Kevin Brown, savings expert at Scottish Friendly, comments:
“On paper a flat inflation reading is to be welcomed. But in the real world, many families are still struggling to make ends meet after three years of blistering price increases.
“As a double blow, September’s inflation reading will probably not be enough to persuade the Monetary Policy Committee (MPC) to reduce borrowing costs again this year. Policymakers will want to see clear evidence that inflation is heading back towards their 2% target before acting, which means another rate cut this year remains unlikely.
“That’s a blow for borrowers hoping for mortgage rates to come down further. As for savers, the best course of action now is to shop around for the best possible deals to ensure that their money is working as hard as it could be or consider longer-term investments that can often offer stronger protection against inflation.”
Jeff Brummette, Chief Investment Officer at independent investment manager Oakglen Wealth, comments:
“The Bank of England’s Monetary Policy Committee is faced with a challenge, with CPI remaining at 3.8%, well above the 2% target. But with the latest labour market data showing a softening in both demand and wage growth, this may not stop them lowering rates at their November meeting.
“Governor Bailey has publicly remarked that the UK economy is running ‘below potential’, and a 25bps rate cut could be seen as sensible risk management ahead of what is likely to be a tightening of fiscal conditions in the Chancellor’s much-awaited Budget.”
Lindsay James, investment strategist at Quilter, sees these data as “an encouraging sign and could mark the peak” commenting:
“Food prices came in at 4.5%, having reached 5.1% in August. While this is better than expected, discounting seems to be the most significant reason, with higher food costs likely to continue in the long term as a result of climate impacts. Recent research has shown that butter, milk, beef, chocolate and coffee have been the main drivers of recent food inflation. This is directly linked to the poor harvests resulting from extreme weather patterns and, while it may revert periodically, looking ahead food prices seem likely to be structurally higher and an ongoing challenge.
“However, transport costs climbed from 2.4% to 3.8%, adding pressure to overall inflation.
“Wage inflation also remains an indirect driver of higher prices generally. It currently sits at nearly 5%, due to a mix of factors including public sector pay rises, a lack of labour mobility, skills gaps and demographic factors. However, despite some of these elements being structural, 2026 is unlikely to see pay rises of this magnitude. Public sector pay agreements have been largely reset, and a still-slow economy is likely to hold back the private sector, which is beginning to turn to AI to fill entry level roles in some areas.
“Other policies that have pushed up costs for businesses are ultimately passed on to consumers. This was the case for the added NI on employers. While it may not have been a direct tax on working people, there is no doubt it has still hit people’s pockets. While there is some optimism that as we reach the one year milestone since the changes to employer NI were first introduced some pressures on inflation will ease, it’s possible that others will be introduced at the November budget.
“The Chancellor must avoid adding further inflationary pressure at the upcoming budget given today’s more positive figures. The current state of public finances was revealed yesterday and underlined the ongoing issue of inflation; it has increased the welfare and pensions bill and pushed up the cost of index linked debt, but it didn’t translate into commensurately higher income tax receipts.
“Currently, the market is expecting the Bank of England to make just two quarter point rate cuts next year as inflation is expected to fall slowly. If inflation falls more decisively then there may be scope for more.”
Nick Hale, CEO of Movera, said:
“With inflation firmly stuck at 3.8%, only time will tell whether this is the peak of the inflation curve, beating the Bank of England’s most recent forecast. But with the Autumn Budget round the corner, another base rate cut remains unlikely – now is the time to get property transactions moving again.
“Buyers may still be hesitant, but conditions are unlikely to improve. Brokers should take this opportunity to reach out to clients waiting for clarity and emphasise that mortgage rates are unlikely to drop this side of the new year – grabbing a deal now before the Autumn Budget could be the way forward. Meanwhile, for conveyancers, ensuring process efficiency through data sharing and digital solutions will be the key to progressing transactions as quickly as possible and generating some momentum in the market, despite today’s news.”
Chris Beauchamp, Chief Market Analyst at IG said:
“While still almost double the BoE’s target, news of inflation holding steady provides a small glimmer of hope for the chancellor ahead of next month’s Budget. Core CPI even slowed for a second month, though policymakers will have to wait a little longer before making a bet that price growth has peaked.”
Charlie Ambler, Co-Chief Investment Officer and Partner at wealth management firm Saltus, said:
“Inflation in the UK stubbornly remains at elevated levels, not easing in the way markets and households would like to see. With this month’s CPI holding firm at 3.8%, the Bank of England is unlikely to abandon its plan of cautious rate cutting but it may well delay the next round – the emphasis remaining firmly on controlling services inflation and wage pressures rather than rushing to ease policy.
“The wider backdrop will influence this decision making. As the Government prepares the Autumn Budget and public finances continue under pressure, the risk of additional taxation or a continuation of fiscal drag is growing. That combination of sticky inflation and fiscal uncertainty is pushing investors to seek safe haven assets – demonstrated by gold hitting another record high this month – and emphasise quality and resilience in their portfolios.
“From an investment perspective, this means maintaining discipline, building diversification, and ensuring risk is taken in areas where the risk-reward profile is balanced and the potential returns justify the exposure.”
David Roberts, Head of Fixed Income at Nedgroup Investments, commented:
“With only a few weeks to the Budget, UK inflation data was eagerly anticipated. Its release this morning was good news for Chancellor Reeves. Although still elevated, the lower than anticipated number helps in several ways:
- Slightly weaker sterling helping Britain’s tariff beleaguered export sector
- Lower gilt yields, reducing the interest burden on the national debt
- Lower inflation linked welfare costs, improving the chances of obeying fiscal rules
- Greater chance the Bank of England cut rates later this year, further boosting each of the above
“We run a global fund. UK bonds only make up around 5% of the market. Earlier this year, we had zero UK interest rate risk as poor investor sentiment combined with poorer relative value to make the decision to avoid seem obvious. The chart below compares US and UK 10-year bonds.
“As recently as February, the UK was borrowing for less than the US. That changed, with bowing costs for the UK moving to close to 0.7% above the US equivalent.
“That’s pretty cheap versus historic norms. The move meant owners of gilts underperformed owners of US Treasuries by around 7%. A lot for core bonds. We bought – first taking our exposure to around 5% and then latterly above 10% as the outlook for the UK improved.
“Gilts still look cheap even after the recent rally. We retain a positive position, not least as most investors still seem underweight and covering of those short positions can see the rally go further.
“However, it’s normally wrong to look a gift horse in the mouth. And with ongoing headline angst ahead of the UK Budget, the politically driven outlook for UK bonds remains uncertain. Gilt value remains good. Recently it was great. We halved our position.
“It’s nice to be in a position to buy back should sentiment again turn negative.”
Hal Cook, senior investment analyst, Hargreaves Lansdown, sees these data potentially making an interest rate cut more likely next month saying:
“Today’s inflation print was universally lower than expected: the main CPI rate of 3.8% was lower than the expected 4%, core inflation fell to 3.5% and services inflation held steady at 4.7%, below an expected figure of 5%. This has added to a view already popular with investors in recent weeks that the Bank of England might end up cutting interest rates more than previously expected over the next 12 months or so. As a result, investors demand for UK government bonds (gilts) has remained strong, causing yields to fall further.
“The inflation data comes on top of UK unemployment creeping up over recent months, hitting 4.8% in August (the latest data available).
“The yield on the 10-year gilts has fallen to around 4.42% today (their lowest level since December 2024), having been as high as 4.75% as recently as 9 October, reflecting investors expectations of rate cuts increasing. Swaps markets are now pricing in a 60% probability of a rate cut ahead of year end, up from 40% yesterday. The Monetary Policy Committee next meet on 6 November to discuss interest rates.
We think the market has overreacted this morning: inflation at 3.8% is still nearly double the Bank of England target and Andrew Bailey has been clear that future rate cuts will be made in a considered fashion and data driven. He hasn’t appeared to be in a rush to cut so far.
“There is also a risk that the upcoming Budget towards the end of November could change things. It’s therefore unclear whether the Bank of England will look to cut at their next meeting or wait to see what comes out of the Budget before cutting further – remember that they have already cut rates three times in 2025, taking them from 4.75% at the start of the year to 4% today. While a cut in November is more likely after this latest inflation data, it’s by no means guaranteed.”
Kindar Brown, Senior Financial Planner at Rathbones, says:
“Inflation unexpectedly held steady at 3.8% in September, defying forecasts of another rise and coming in just below the Bank of England’s 4% expectation for the autumn. But with inflation still running at almost double the 2% target, the latest reading does little to strengthen the case for looser monetary policy. Price growth remains stubbornly high and continues to squeeze household budgets, even as some costs cool.
“The headline figure was tempered by easing food prices and slower inflation in the recreation and culture sector, which helped offset upward pressure from higher airfares and rising petrol and diesel costs.
“The figure also sets the stage for the Government’s next round of uprating. Under the state pension triple lock, payments are set to rise by 4.8% from April 2026, reflecting the May-July wage growth figure, which was the highest of the three triple-lock measures (inflation, earnings, or 2.5%). This means the new state pension will sit just £22 below the frozen personal allowance (£12,570). However, with a multibillion-pound fiscal black hole to fill and a ballooning welfare bill, the Chancellor may yet reconsider the generosity of the triple lock.
“The latest inflation figure also complicates the Bank of England’s task. While inflation has fallen a long way from its double-digit peaks, it remains painfully high for many households – a reminder that the journey back to price stability is proving long, uneven, and far from over.”
Nathan Emerson, CEO of Propertymark, comments:
“We still sit within a phase where the economy remains sensitive, both domestically and globally. We have seen inflation trend back upwards over the last twelve months; however, we are thankfully in a much better position than we were only three years ago, when the rate of inflation sat at 11.1%.
“The Bank of England is still in a challenging position when it comes to making any calls to further reduce the base rate currently. However, there is widespread optimism into the new year that we could see the Monetary Policy Committee consider new dips in the base rate, all of which should help provide additional affordability for many consumers regarding housing.”
David Morrison, Senior Market Analyst at FCA-regulated fintech and financial services provider, Trade Nation, comments:
“Headline inflation came in comfortably below the 4.0% anticipated. CPI has held steady at 3.8% for three months now, leading analysts to suggest that it may have peaked. The news triggered a sharp sell-off in sterling and a rally in UK equities. The better-than-expected inflation update has led traders to reassess the probabilities for rate cuts from the Bank of England this year and beyond. The probability of a 25-basis point cut in December rose to 75% from 46%. The Bank of England is expected to keep rates on hold at its next meeting in November as it will want to digest the contents of Rachel Reeves’ budget.”
Nathaniel Casey, Investment Strategist at UK wealth manager Evelyn Partners said:
“UK CPI held steady at 3.8% year-on-year in September, unchanged from August and below consensus forecasts of 4.0%. Core inflation eased slightly to 3.5%, defying expectations of a rise to 3.7%, potentially marking the peak of the latest inflationary cycle.
“The softer print, below the Bank of England’s forecasted September peak of 4%, offers some relief ahead of Budget season. It’s particularly relevant for welfare uprating and the state pension triple lock – though with earnings growth at 4.8%, that metric is likely to dominate the calculation for pensioners.
“Despite the positive surprise, inflation remains nearly double the BoE’s 2% target. Money markets have barely reacted, with no change to interest rate expectations. Currently, no further rate cuts are priced in for 2025 and just 50 basis points expected in 2026. The BoE remains the most cautious among developed market central banks in the rate-cutting cycle.”
