Inflation remained stubbornly stuck at 3.8 per cent for the 12 months to September 2025, defying expectations of a rise to four per cent but staying nearly double the Bank of England’s target rate.
The Office for National Statistics confirmed the consumer price index held at the same level seen in recent months, offering modest relief for Chancellor Rachel Reeves ahead of her crucial Autumn Budget on 26 November.
However, with inflation persistently hovering well above the central bank’s two per cent target, economists warn the Monetary Policy Committee may delay further interest rate cuts, prolonging the squeeze on homeowners and consumers alike.
Slight Relief From Predicted Rise
Previous forecasts had estimated inflation would climb to four per cent in September, making the flat reading marginally better news for the government.
Nevertheless, maintaining 3.8 per cent inflation represents a stubborn refusal to fall towards the Bank of England’s desired level despite months of monetary tightening.
Households continue battling elevated prices for goods and services stemming from the post-pandemic cost of living crisis that has eroded real incomes for millions.
Transport Drives Inflation Higher
According to ONS analysis, transport costs made the largest upward contribution to both the main CPI figure and CPIH (which includes housing costs).
Petrol prices and airfares were particular culprits, with the pace of price falls easing compared to the previous year rather than continuing to decline steeply.
These transport pressures offset positive movements elsewhere in the inflation basket.
Food Prices Fall for First Time Since May 2024
In encouraging news for household budgets, food and non-alcoholic beverage prices actually fell for the first time since May last year.
This represents a significant milestone after more than a year of relentless increases in supermarket bills that have squeezed family finances.
Food costs made one of the largest offsetting downward contributions to the overall inflation rate alongside recreation and culture spending.
Recreation Costs Ease
Lower prices for recreational and cultural purchases, including live events, helped dampen overall inflation pressures.
After years of post-pandemic price surges for entertainment and cultural activities, some normalisation appears underway as consumer spending power weakens.
Grant Fitzner, ONS chief economist, explained: “A variety of price movements meant inflation was unchanged overall in September. 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. The cost of food and non-alcoholic drinks also fell for the first time since May last year.”
Core Inflation Edges Lower
Core CPI, which excludes volatile energy, food, alcohol and tobacco prices, dropped slightly from 3.6 per cent in August to 3.5 per cent in September.
This measure is watched closely by policymakers as it strips out components subject to external shocks and reveals underlying inflation pressures.
The modest decline suggests inflationary momentum may be gradually weakening, though progress remains painfully slow.
Services Inflation Remains Elevated
CPI services inflation stayed unchanged in September at 4.7 per cent – a worryingly high level that indicates domestic price pressures remain embedded.
Services inflation proves particularly stubborn as it reflects wage growth and business costs that adjust slowly.
The Bank of England watches services inflation anxiously as sustained elevation suggests inflation expectations have become entrenched.
Goods Inflation Ticks Up
Conversely, CPI goods inflation rose slightly from 2.8 per cent to 2.9 per cent between August and September.
This uptick reflects how goods prices, whilst lower than services, haven’t fallen as rapidly as hoped.
Interest Rate Cut Prospects Dim
Economists have warned that inflation’s refusal to fall meaningfully could spook the Monetary Policy Committee into delaying further interest rate cuts.
The Bank has been “slow to cut rates, making things more difficult for homeowners,” according to Alastair Douglas, TotallyMoney CEO.
With inflation still nearly double target and services inflation particularly high, the MPC may judge that cutting rates risks reigniting price pressures.
Brexit Blamed by Chancellor and Governor
Douglas noted that “both the Chancellor and the Governor of the Bank of England have blamed Brexit over the past few days – just weeks ahead of the Autumn Budget, and the next Monetary Policy Committee meeting.
The coordinated messaging suggests the government and central bank are aligning their narratives around external factors hampering economic performance.
Now they’ve found a common enemy, let’s hope they can agree on a plan to kickstart the economy,” Douglas added.
“Stubbornly Difficult to Shake Off”
Douglas characterised the inflation picture as persistently problematic despite improvement from the October 2022 peak of over 11 per cent.
“While inflation has slowed considerably since the October 2022 peak, it’s still been stubbornly difficult to shake off, consistently driving up the cost of living, squeezing household finances, and piling pressure onto the lives of millions,” he stated.
The combination of elevated inflation and high interest rates creates a particularly painful squeeze for households facing both reduced purchasing power and increased borrowing costs.
Reeves Faces Budget Dilemma
The September inflation figures arrive at a critical moment for Chancellor Rachel Reeves, who delivers her first Autumn Budget in just over a month.
Whilst the slightly-better-than-expected reading provides marginal relief, inflation at 3.8 per cent still constrains her fiscal options.
Tax cuts would risk stoking inflation further, yet tax rises face fierce political opposition amid the cost of living crisis.
Homeowners Still Squeezed
For homeowners, particularly those on variable or tracker mortgages, the persistent inflation means interest rates will likely remain elevated for longer.
Even those on fixed-rate deals face the prospect of significantly higher payments when remortgaging compared to rates locked in before the inflation surge.
The Bank’s caution about cutting rates too quickly prioritises inflation control over mortgage affordability.
Long Road Back to Target
With inflation at 3.8 per cent and the Bank targeting two per cent, the UK faces a long journey back to price stability.
Each percentage point of excess inflation represents billions of pounds in eroded purchasing power for consumers and businesses.
The stubborn nature of services inflation in particular suggests this journey could take many more months, if not years.
As families continue navigating elevated costs for essentials alongside high borrowing rates, the slight improvement in food prices offers welcome but insufficient relief from a cost of living crisis showing little sign of truly abating.
Follow for more updates on Britannia Daily
