UK Inflation hits 3.5% ahead of Budget

UK Inflation (CPI) rose higher than expected in September to 3.5% according to the latest figures released from the Office for National Statistics (ONS).  

With just a week until new Chancellor John Healey delivers his first Budget as chancellor, the new inflation figures and the subsequent expectation of a base rate hike are adding pressure. That said, unemployment in August 2026 fell to 4.7% from 4.9% in July, according to the ONS, where 5% was expected, so the overall picture is mixed in the lead up.  

Reacting to the figures, Healey claimed "conflicts in the Middle East and Europe" were to blame for rising prices, adding that his Budget next week would give families and businesses "breathing space".

Economists had expected the consumer prices index (CPI) to rise to 3.4%, meaning inflation exceeded expectations by 0.1%. This may not seem like a lot, but it's important to remember that the predicted 3.4% was already a bad sign for consumers, as it is still well above the Bank of England’s 2% target.

For those on the state pension waiting on the final part of the triple lock to see what their pension increase will be, there will be no change, however. With all three elements of the triple lock now received (inflation, wages, or 2.5%), the increase in average wages has proved to be the highest of the trio, rising at 3.9%, so the government is expected to confirm 3.9% as the rise in the state pension in April.

Why is inflation on the rise again?

Figures from the ONS revealed that rising fuel costs were the biggest contributor to September’s increase in inflation. Petrol prices climbed by an average of 8.2p per litre between August and September 2026, compared with a 0.2p decline over the same period last year.

Diesel prices also increased sharply, rising by 10.7p per litre in September 2026, against a fall of 0.4p in September 2025. The increases follow a surge in global oil and gas prices since the US and Israel launched their war Iran at the end of February, disrupting energy supplies passing through the Strait of Hormuz.

Higher fuel costs also affected air travel, with fares falling by less than is typical in September following the busy summer holiday period.

However, there was some welcome news for the chancellor, as clothing prices edged down and food price inflation held steady at 1.3%. Strong competition between supermarkets helped limit the impact of rising transport costs on food prices.

What is inflation and how is it measured?

Inflation is a measure of how the prices of goods and services have increased over time. Goods are tangible items sold to customers, such as food, while services are tasks performed for the benefit of recipients, such as a haircut. Generally, this increase is measured by considering the cost of things today compared to how much they cost a year ago. The average increase between these prices is demonstrated in the inflation rate.  

Rising interest rates directly affects the cost of living. For example, if the price of a bottle of milk is £1, and inflation is increasing by 5%, then your bottle of milk will cost you 5p more. Or, in other words, the spending power of your money has decreased by 5%.  

Ideally, the Government wants to keep inflation low and stable. The general mandated target for the Bank of England is 2%.

Anything significantly above or below this target is thought to cause issues for the economy and may result in pressure to increase UK base rates which would increase the costs of borrowing.

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