UK Inflation Holds Steady at 3.8% in September, Double Bank of England Target

The United Kingdom's annual inflation rate remained unexpectedly steady at 3.8% in September 2025, according to data released by the Office for National Statistics (ONS). This figure marks the third consecutive month that the Consumer Prices Index (CPI) has held at this level, following August and July, and is significantly higher than the Bank of England's (BoE) 2% target. Economists had largely anticipated a rise to 4% for September.

Inflationary Pressures and Offsets

The ONS report detailed various factors influencing the inflation rate. Upward pressure primarily stemmed from transport prices, which saw a 3.8% year-on-year increase, a notable rise from 2.4% in August. This was largely driven by higher costs for motor fuels and airfares. Prices also accelerated in sectors such as restaurants and hotels, increasing to 3.9% from 3.8%, and in clothing and footwear, which rose to 0.5% from 0.2%. Conversely, some categories provided offsetting downward pressure. Inflation slowed in recreation and culture, falling to 2.7% from 3.2%, with a significant decrease in prices for live music events. Furthermore, food and non-alcoholic beverages saw their first moderation since March, with annual inflation easing to 4.5% from 5.1% in August, and a monthly decline of 0.2%. Core inflation, which excludes volatile items like energy, food, alcohol, and tobacco, also unexpectedly slowed to 3.5% from 3.6%.

Implications for Interest Rates

The persistent inflation rate, while lower than forecast, remains well above the Bank of England's target, leading to speculation about the future trajectory of interest rates. The Monetary Policy Committee (MPC) of the Bank of England had previously cut the Bank Rate to 4% in August 2025. While some analysts suggest that the steady figure might put a December rate cut 'back on the cards', a cut at the upcoming November meeting is considered unlikely. The Bank's own forecasts in August had suggested inflation would peak at 4% in September before declining.

Official Reaction and Economic Outlook

Chancellor Rachel Reeves responded to the inflation data, stating, 'I am not satisfied with these numbers.' She emphasized the government's responsibility in supporting the Bank of England to bring inflation down and highlighted the need to address the cost of living challenges faced by households. The 3.8% rate represents the joint-highest since January 2024, when inflation stood at 4%, and marks the twelfth consecutive month that CPI has surpassed the 2% target. The ONS also noted that Britain's inflation rate was higher than that of the European Union, which stood at 2.6%.