UK inflation rises to 3.5% in September on fuel prices, above forecasts

Inflation beats forecasts

The Office for National Statistics said consumer prices rose 3.5% in the 12 months to September, up from 3.1% in August. Analysts' consensus had pointed to 3.4%, so the reading came in above expectations. Prices also rose 0.4% over the month, the ONS data showed. The annual rate is the strongest since October last year, when it stood at 3.6%.

Fuel leads the increase

Transport was the largest upward contributor to the rise, with motor fuels singled out in the ONS figures. Average petrol and diesel prices reached their highest level in four years in September. ONS chief economist Grant Fitzner put the overall picture plainly.

Inflation climbed notably in September to its highest annual rate in almost a year.

Fitzner also pointed to diesel, whose cost he singled out as the key pressure.

Increased fuel prices were again the main driver, with the cost of diesel the highest since July 2022.

Airfares added to the upward pressure, along with computer games and live events, which he described as often volatile. Hotel stays partly offset the rise, with prices increasing by less than a year earlier.

Core inflation and the Bank of England

Core inflation, which strips out energy, food, alcohol and tobacco, rose to 2.8% in the 12 months to September from 2.6% in August. Restaurants and hotels provided the largest downward contribution, partly offsetting the increase in transport costs. The figures leave the Bank of England on track for its first interest-rate hike in over three years. Prices rose faster than the forecasts that had shaped market expectations for the month.

Budget due a week later

The release landed one week before John Healey delivers his first Budget, the Telegraph reported. RTE noted that the Labour government's annual budget is expected to address cost of living pressures. The inflation data therefore adds weight to the cost of living debate ahead of that statement. Bloomberg's markets briefing also flagged that the government looks set to sell more gilts.