Macro
UK inflation climbs to 3.5% in September, beating forecasts as fuel costs jump
Headline CPI hit its highest level since October 2025 and core and services inflation both rose, keeping a November Bank of England hike all but priced in.
HedgeWeekly News Desk ·
UK consumer price inflation rose to 3.5% in the year to September from 3.1% in August, official data showed on Wednesday. The reading topped the 3.4% median forecast in a Reuters poll of economists and was the highest annual rate since October 2025.
Underlying measures also moved higher. Core inflation, which strips out volatile items such as energy and food, rose to 2.8% from 2.6%, in line with expectations, while services inflation climbed to 3.7% from 3.4%. Motor fuel was a key driver: the average petrol price rose 8.2 pence a litre between August and September to 169.5 pence, its highest since August 2022, compared with a 0.2 pence fall over the same months a year earlier.
The energy shock linked to the Iran war, which intensified in September, has hit Britain harder than many Western economies because of its reliance on imported natural gas. The Bank of England had forecast in July that inflation would rise only to 3.0%. Sterling showed little reaction, with GBP/USD trading around 1.3365 after the release.
Why it matters: before the data, traders priced roughly 96% odds of a 25 basis point hike at the Bank of England's November meeting, which would lift Bank Rate to 4% in its first increase in three years. The bank has argued the energy shock has had a limited effect on broader inflation so far, so the rise in services and core inflation is the detail rate-sensitive investors will focus on. Gilt and sterling positioning now hinges on the November decision and on the government's budget, due next week, which is expected to include more support for households facing higher energy bills.