UK inflation held firm at 3.8% for a third consecutive month in September, according to the latest figures from the Office for National Statistics (ONS), despite expectations of a rise. While the data shows some stability, experts warn that this could deepen the UK’s economic challenges as we approach winter.
Wealth experts have shared their thoughts on the latest figures:
Nathaniel Casey, Investment Strategist at 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.”
Lindsay James, investment strategist at Quilter, said:
“UK inflation remained at 3.8% for the third month in a row in September, slightly better than expected. Overall, this is an encouraging sign and could mark the peak.
“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.”
Hal Cook, Senior Investment Analyst at Hargreaves Lansdown, said:
“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.”
Charlie Ambler, Co-Chief Investment Officer and Partner at 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.”
Derrick Dunne, CEO of YOU Asset Management, said:
“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.”
Steven Cameron, Pensions Director at Aegon, said:
“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?”
Jeff Brummette, Chief Investment Officer at Oakglen Wealth, said:
“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.”
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.”
David Roberts, Head of Fixed Income at Nedgroup Investments, said:
“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 is helping Britain’s tariff beleaguered export sector, while lower gilt yields reduce the interest burden on the national debt. Meanwhile, Lower inflation-linked welfare costs improve the chances of obeying fiscal rules and there is a greater chance that the Bank of England cut rates later this year.
“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.”
Danni Hewson, Head of Financial Analysis at AJ Bell, said:
“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.”
Kindar Brown, Senior Financial Planner at Rathbones, said:
“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.”
