Inflation clings stubbornly to 3.8% for the year to September 2025, confounding forecasts that predicted a rise to 4%. This figure remains nearly double the Bank of England’s 2% target, prolonging the cost of living misery for millions.
The Office for National Statistics (ONS) confirmed the flat consumer price index reading, offering some relief for Chancellor Rachel Reeves ahead of her crucial Autumn Budget on 26 November. Yet experts warn that persistent inflation means the Bank’s Monetary Policy Committee (MPC) may hold off on cutting interest rates, keeping pressure on homeowners and shoppers.
Transport Costs Push Inflation Up, Food Prices Drop
Transport prices, especially petrol and airfares, were the main culprits pushing inflation upward. The rate at which these prices are falling has slowed compared to last year, keeping overall inflation elevated.
On a brighter note, food and non-alcoholic beverages prices fell for the first time since May 2024. This welcomed dip eases some strain on household budgets after a relentless year of soaring supermarket bills. Recreation and culture prices also dropped, thanks to cheaper live events and entertainment.
Gary Fitzner, ONS Chief Economist: “A variety of price movements meant inflation was unchanged overall in September. The largest upward drivers came from petrol prices and airfares, where the fall in prices eased in comparison to last year. These were offset by lower prices for a range of recreational and cultural purchases including live events. The cost of food and non-alcoholic drinks also fell for the first time since May last year.”
Core Inflation Nudges Down, Services Inflation Stubbornly High
Core CPI, which excludes volatile sectors like food and energy, dipped slightly from 3.6% in August to 3.5% in September—a sign underlying inflation may be easing, but very slowly.
Meanwhile, inflation for services remained high at 4.7%, signalling ongoing wage and business cost pressures that refuse to budge. Goods inflation nudged up from 2.8% to 2.9%, showing goods prices aren’t falling as quickly as hoped.
Interest Rate Cuts on Ice as Inflation Refuses to Drop
Experts warn the steady inflation rate could scare the Bank of England away from further interest rate cuts. Alastair Douglas, CEO of TotallyMoney, said:
“The Bank has been slow to cut rates, making things more difficult for homeowners.”
“Both the Chancellor and the Bank Governor have blamed Brexit lately—a shared scapegoat as we approach the Autumn Budget and MPC meeting.”
“Now they’ve found a common enemy, let’s see if they can agree on how to kickstart the economy.”
Douglas added that despite cooling from the peak of over 11% in October 2022, inflation remains a “stubbornly difficult” beast that keeps squeezing household budgets and piling pressure on millions.
Chancellor Rachel Reeves Faces Tough Budget Choices
With inflation stuck at 3.8%, Reeves’ upcoming Autumn Budget faces a dilemma. Cutting taxes risks fuelling inflation further, while raising taxes could provoke political backlash amid ongoing cost of living woes.
Homeowners, especially those on variable or tracker mortgages, will likely endure higher interest rates for longer. Fixed-rate borrowers face painful remortgage bills far above pre-inflation levels.
The Bank’s cautious stance prioritises taming inflation over mortgage affordability, meaning tough times ahead for many.
Long Road Ahead to Inflation Target
The UK’s price stability goal remains a long way off. Each extra percentage point above target chips billions from consumer spending power.
Persistent service sector inflation hints the battle could last months, if not years. For now, the modest drop in food prices is little more than a brief breather in an ongoing cost of living crisis.
