The latest figures also present a challenge for Chancellor John Healey, who is preparing to deliver his first Budget on 28 October. Higher energy costs, increased government borrowing and concerns about further price rises have narrowed the Treasury’s room for manoeuvre.
Fuel Prices Drive UK Inflation Above Expectations
According to the Office for National Statistics (ONS), annual Consumer Prices Index (CPI) inflation increased from 3.1% in August to 3.5% in September, exceeding economists’ forecasts of 3.4%. It was the highest reading since October 2025, when inflation reached 3.6%.
Transport costs were the largest contributor to the increase, particularly petrol and diesel. Motor fuel prices rose by 29.8% over the year to September, compared with an annual increase of approximately 23% in August. Average petrol prices climbed by 8.2p per litre between August and September, reaching 169.5p. Diesel increased by 10.7p to 192.5p per litre, its highest level since July 2022.
The increases followed disruptions to global oil and gas supplies linked to the conflict involving Iran. US and Israeli attacks beginning in February were followed by severe restrictions on shipping through the Strait of Hormuz, a major route for international oil supplies.
Other categories also contributed to inflation. Airfares fell by less than usual following the summer travel period, while computer games and live events added upward pressure. Hotel prices provided a partial offset.
According to The Guardian, food price inflation remained steady at 1.3%, while clothing prices fell slightly. Competition between supermarkets helped limit food price increases despite higher transport costs. The broader inflation measures also increased. CPI including owner-occupiers’ housing costs (CPIH) reached 3.6%, compared with 3.3% in August, while Retail Prices Index inflation rose from 3.4% to 3.9%.
Interest Rate Concerns Grow as Chancellor Prepares Budget
September’s inflation reading has strengthened expectations that the Bank of England will raise interest rates at its next meeting on 5 November. Inflation remains above the Bank’s 2% target, with policymakers also monitoring underlying price pressures.
According to Bloomberg, services inflation increased to 3.7%, while prices charged by manufacturers rose by 4.6%, their fastest annual pace since April 2023. Producer input costs increased by 8.3%, compared with 6.7% in August.
The figures arrived alongside higher government borrowing. The ONS reported that borrowing reached approximately £25bn in September, £1.8bn more than a year earlier, as rising debt interest costs added to public spending.
Healey acknowledged that conflicts in the Middle East and Europe were affecting prices in Britain and elsewhere. He also confirmed government approval for gas production from the North Sea’s Jackdaw field.
September’s CPI figure will influence benefit increases from April 2027. Meanwhile, the state pension is expected to rise by 3.9% under the triple lock, reflecting wage growth rather than inflation. The Chancellor now faces the Budget with household costs rising and borrowing pressures mounting. The Bank of England’s November decision will follow shortly afterwards.
