UK inflation remained unchanged at 3.8% in September, defying expectations of a rise and increasing the likelihood that the Bank of England could begin cutting interest rates before the end of the year.
Data released by the Office for National Statistics (ONS) on Wednesday showed that consumer price inflation (CPI) held steady from August, coming in below both the Bank of England’s and City economists’ forecast of 4%. The figures suggest that the slowdown in price growth may be regaining momentum, offering cautious optimism to households and policymakers.
The main driver behind the stable reading was a further easing in food price inflation, which fell from 5.1% to 4.5% — its first decline in six months. Softer price rises were also recorded across recreation, hospitality, and services, helping offset higher fuel and airfare costs. Core inflation, which excludes food and energy, dipped slightly from 3.6% to 3.5%, while services inflation held at 4.7%, below the Bank’s 5% projection.
Economists said the weaker-than-expected data strengthens the case for a near-term interest rate cut. “A November move looks unlikely, but policymakers may be overestimating how long they can wait,” said Martin Beck, chief economist at WPI Strategy. “Fiscal tightening in the Budget, combined with rising unemployment and slowing wage growth, points to a softening economy. A forward-looking central bank should recognise that disinflationary forces are building.”
George Buckley, chief European economist at Nomura, said the latest figures keep “the next MPC meeting live,” predicting a 25-basis-point rate cut as early as November. Markets are now pricing in a rate reduction in December, with additional cuts expected in early 2026 as inflation edges closer to the Bank’s 2% target.
The inflation update comes ahead of Chancellor Rachel Reeves’s first full Budget on 26 November, where the government is expected to announce measures to ease cost-of-living pressures. Reeves said she was “not satisfied” with current inflation levels but reaffirmed that reducing price pressures remains her top priority. “We will continue to help those struggling with bills while building an economy that rewards working people,” she said.
Sources close to the Treasury suggest the Budget could include a temporary VAT cut on energy bills, an extension of the fuel duty freeze, and steps to reduce payroll costs. Analysts at Capital Economics estimate that a 5% VAT reduction on utilities could lower annual CPI by 0.2 percentage points.
Despite September’s encouraging data, the UK is still projected by both the IMF and OECD to record the highest average inflation among major developed economies this year. Persistent pressures from transport costs and global food prices continue to weigh on household budgets.
However, some economists now see clearer signs of relief ahead. “The disinflation process is clearly underway,” said Rob Wood, chief economist at Pantheon Macroeconomics. “Combined with slowing growth and a tight fiscal stance, inflation could fall below 3% next year — making a case for rate cuts sooner rather than later.”
Under the government’s “triple lock” formula, the latest data also confirm that state pensions will rise by 4.8% next April, matching growth in average earnings.
With inflation stabilising and growth cooling, September’s figures may signal the turning point that allows the Bank of England — and the Treasury — to finally begin easing financial pressures on households.
