- Inflation rose to 3.5% in the year to September, according to the latest figures from the Office for National Statistics
- The largest contributor to inflation was the transport sector, where prices rose by 6.6%
- Experts believe inflation will continue to rise in the coming months as the UK continues to deal with the economic hit from the Iran war.
| What is inflation? | CPI vs RPI inflation | When will interest rates fall further? | CPI release dates | MPC meeting dates | What is your personal inflation rate? |
Good afternoon and welcome to MoneyWeek’s live coverage of September’s inflation data.
Stay tuned on this page for the latest analysis and commentary as well as the breaking news as soon as we get it tomorrow morning.
When will September’s inflation data be published?
The Office for National Statistics (ONS) will publish the latest inflation data covering September on 21 October at 7am.
The report will contain the latest data for all the UK’s measurements of inflation, including the consumer prices index (CPI), retail prices index (RPI), and the consumer prices index including owner occupiers’ housing costs (CPIH).
The ONS publishes inflation data every month.
What is inflation?
Inflation is a key economic metric that shows how much prices have increased in a set period of time, usually a year.
For instance, if a box of apples cost £10 in one year, but then cost £11 the next year, we can say that it experienced inflation of 10%.
In the UK, the most important way of measuring inflation is through the consumer prices index (CPI), which is updated every month.
The UK’s target level of inflation, like that of most other comparable economies, is 2%. Economists believe this level is a healthy rate of price growth.
What is the difference between CPI, RPI, and CPIH?
The UK’s three main metrics of inflation (CPI, RPI, and CPIH) all measure how much prices have increased, but they all do this in slightly different ways.
The most important measure of inflation in the UK is the consumer prices index (CPI) as it is an internationally recognised statistic and is used by policymakers to help inform their decisions.
To measure CPI each month, the ONS looks at around 180,000 prices across almost 750 typical goods and services to see how prices have changed. This shopping basket is reviewed each year to ensure the statistic keeps up with people's evolving spending habits.
The retail prices index (RPI) used to be the UK’s official measure of inflation, and usually tracks a little higher than CPI because it includes costs associated with home ownership and is calculated differently.
Despite CPI now being the official measure, RPI is still relevant today as certain taxes (like tobacco duty, alcohol duty, and others) are influenced by it.
Finally, the consumer prices index including owner occupiers’ housing costs (CPIH) differs from standard CPI as it includes the costs of owning, maintaining and living in a home.
What to expect from tomorrow’s inflation data
Experts believe tomorrow’s inflation data will show that price growth accelerated again in September as the global economy is still dealing with the shock of the Iran war.
Most economists believe UK inflation will remain above the Bank of England’s target level of 2% for at least the rest of 2026 and into 2027.
The central bank’s latest projections show that prices could rise to an average of 3.75% in the final quarter of 2026, of which September is the first month.
The BoE then expects inflation to edge up to around 4% at the start of 2027 before starting to fall back to normal over the rest of next year.
These forecasts are echoed by Deutsche Bank who agree that inflation will likely rise in the coming months, also expecting it to reach around 4% by the start of 2027.
Why is war in the Middle East causing price hikes in the UK?
Since 28 February, the Iran war has put major pressure on the global economy, disrupting trade and leading to price increases across the world.
In particular, the conflict has meant that the Strait of Hormuz, a narrow waterway between Iran and Oman through which around 20% of the world’s oil is transported, has been shut, pushing up oil prices.
As oil is used in the production of many of the goods we consume daily, prices have risen. In particular, the price of energy and fuel have soared due to the conflict.
As the conflict is still ongoing and trade has not returned to normal, experts believe inflation will continue rising in the UK.
Energy price hikes expected to lead to higher inflation later this year
The Ofgem energy price cap rose by 4% on 1 October, bringing the average household energy bill to £1,723 per year.
Energy bills were pushed up because of the shock the Iran war has had on global energy markets.
Higher energy bills are particularly relevant to rising inflation as almost every household in the UK is exposed to energy price hikes, meaning costs go up for millions of households around the country.
This is set to get worse at the start of 2027, as energy consultancy Cornwall Insight, which is well-renowned for the accuracy of its price cap forecasts, expects energy bills to rise by another 16%.
Such an increase would bring the average energy bill to £1,999 in the first quarter of 2027 – an increase of £276 compared to the October price cap.
Where has inflation gone recently?
At the start of the year, most economists expected inflation to return to the 2% target in 2026, but the Iran war meant forecasts had to be revised.
Following a few months of easing inflation in the first half of 2026, price growth started to rise again in July, and forecasters expect this to keep rising for the remainder of the year and into 2027.
What did August’s inflation data show?
Inflation rose to 3.1% in the year to August, up from 2.9% in July, according to the ONS.
August’s rise was driven by sharp rises in the price of fuel, which had been rising since February due to the Iran war.
Grant Fitzner, chief economist at the Office for National Statistics, said rising crude oil and petrol prices increased the cost of raw materials and price of goods leaving factories.
Higher airfares, in particular for long-haul flights, also contributed to the rise in inflation.
Thank you for following our live report ahead of tomorrow’s inflation data.
Join us tomorrow morning where we will report on the breaking news as soon as it is available at 7am.
Good morning and welcome back to MoneyWeek’s live coverage of September’s inflation data.
The Office for National Statistics will release the latest figures in a few minutes, so stay tuned on this page for the news as soon as we get it.
Why did inflation rise?
September’s rise in inflation was driven by a sharp price rises in the transport sector, where inflation rose overall to 6.6% in the year to September 2026, up from 4.6% in the previous month.
The motor fuels sub-section experienced particularly strong inflation in the year to September, as overall motor fuel prices rose by 29.8%.
The restaurants and hotels sector was the largest downwards contributor for inflation, partially offsetting rises elsewhere.
Where did CPIH and core CPI go?
The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 3.6% in the 12 months to September, up from 3.3% in August.
Meanwhile, core CPI, which strips out volatile items like energy and food, rose by 2.8% in September, up from 2.6% in August.
September’s rise was driven by fuel price hikes, says ONS chief economist
Fuel prices have continued to be the main driver of inflation in September, according to the ONS.
Grant Fitzner, chief economist at the ONS, said: “Inflation climbed notably in September to its highest annual rate in almost a year. Increased fuel prices were again the main driver, with the cost of diesel the highest since July 2022.
“Other upward pressures included airfares and, to a lesser extent, computer games and live events, which are often volatile.
“These were partially offset by the cost of hotel stays, where prices rose by less than this time last year. The annual cost of both raw materials and goods leaving factories continued to rise, driven by higher crude oil and petrol prices, respectively.”
Where will inflation go next?
Today’s announcement that inflation rose to 3.5% is consistent with expert predictions that price growth will continue to accelerate in the coming months.
The Bank of England expects inflation to average 3.75% in the final quarter of 2026 before rising to 4% in the first quarter of 2027, according to their estimates published last month.
Deutsche Bank expects inflation to reach approximately 4% by the start of 2027.
On the other hand, the average forecast by economists surveyed by the Treasury is that inflation will average 3.4% in the final quarter of 2026 and ease to an average of 2.3% by the fourth quarter of 2027.
Inflation is now at highest level since October 2025
September’s inflation figures show inflation is now at its highest level since October 2025, just under a year ago.
If prices keep rising in line with forecasts by the Bank of England and reach around 4% at the start of 2027, it would bring inflation to its highest since January 2024.
Where have fuel prices gone this year?
Price hikes in the motor fuel sector were a major driver of inflation in September, according to the ONS, but this will be no surprise to anyone who has visited a forecourt recently.
Fuel prices have soared since the Iran war broke out on 28 February as a constrained global supply of oil, which is used in the manufacturing of petrol and diesel, has forced prices up.
A litre of petrol now costs an average of 174p in the UK, up by 41p since the start of the Iran war on 28 February, according to RAC fuel watch.
Meanwhile, a litre of diesel now costs an average of 199p, up by around 57p since the start of the Iran war.
State pension set to rise by 3.9%
The state pension is set to rise by 3.9% thanks to the triple lock as September’s inflation data was not higher than July’s earnings growth data.
The triple lock makes sure the state pension rises by the highest of either inflation in September, earnings growth in July, or a flat 2.5%.
As we now have the final piece of data used to calculate how much the state pension will increase, we can expect the full state pension to rise to around £250 a week in the 2026/7 tax year, up from £241 a week this year.
Official confirmation of how much the state pension will rise next year will come at the Autumn Budget on 28 October.
Rising inflation is “perilous” for the chancellor head of Budget
Higher inflation will turn “the Budget into a perilous high-wire act,” according to Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales (ICAEW).
He said the chancellor will face “increasing pressure for cost-of-living support while [inflation pushes up] government borrowing costs, which is shrinking fiscal headroom and narrowing his policy options.”
“With inflation increasing, the pieces are falling firmly into place for a November rate rise. Policymakers will also be looking to the Chancellor to avoid adding fuel to the inflation fire by delivering a credible, fiscally disciplined Budget.”
Thiru added that September’s rise in inflation is “likely to have been followed by another jump in October, with higher energy prices lifting inflation towards 3.8%, before fresh energy bill rises in January drive it close to 4.5%.”
What is your personal inflation rate?
While the headline inflation figures show overall prices rose by 3.5% in the last 12 months, everyone experiences price growth differently.
For example, someone who does not drive a vehicle will not have to contend with the soaring price of petrol and diesel.
To get a better understanding of how price rises are affecting your finances, you can calculate your personal inflation rate.
You can do this by looking through your receipts and looking at the items you regularly buy to create your own ‘basket of goods’. You can then track how it changes each month when you go shopping.
If you compare this to your expenditure in the same month a year ago (and your spending habits were roughly the same), the difference between the two figures will give you a rough idea of how much prices have gone up or down.
If you don’t want to do the calculations yourself, it might be easier to use the personal inflation calculator provided by the ONS.
Average savings accounts still beat inflation
Despite inflation ticking up, the average savings account still pay an interest rate that means your money is growing in real terms, albeit slowly.
The average savings account gives an interest rate of around 3.8%, 0.3 percentage points more than inflation, meaning there are a total of 1,683 savings accounts currently on the market that beat inflation, according to data from Moneyfacts.
Caitlyn Eastell, personal finance analyst at Moneyfacts, said: “With the cost of living continuing to put pressure on households, savers can’t afford to be complacent about where their money is held.
“Watching a savings balance creep up can offer reassurance, but if the interest earned fails to keep pace with inflation, that money is effectively losing spending power.”
Could the Bank of England raise interest rates in November?
Rising inflation in the UK will likely prompt the Bank of England’s Monetary Policy Committee to raise interest rates at their next meeting in November, according to David Rees, head of global economics at Schroders.
“Britain is facing a perfect storm of imported inflation pressures. Today’s rise in headline inflation was always going to be energy-led, but food and manufactured-goods prices look set to climb in the months ahead, pushing CPI towards 4%,” said Rees.
“The key question for the Bank of England is whether this external shock starts to leak into domestic wages and prices. Stronger growth and labour-market data point to an earlier recovery than we had assumed, while leading indicators of core services inflation are turning higher. That combination means a November rate hike now looks like a done deal.”
Although Rees expects interest rates to rise, he adds that the tightening cycle is unlikely to be prolonged.
Recap: What did September’s inflation data reveal?
- Inflation rose by 3.5% in the year to September, according to the latest data from the ONS
- The rise was mostly driven by rising transport prices, particularly hikes to motor fuel prices
- Rising prices will be a challenge for chancellor John Healey as he puts the finishing touches on his first Budget
- The Bank of England is under increasing pressure to increase interest rates in response to high inflation
Food inflation remains low despite headwinds
Food inflation has remained low in the face of global economic shocks, with September’s data showing that food prices have only increased by 1.3% in the last 12 months.
Bogdan Toma, head of consumer practice at consultancy McKinsey & Company, said: “Food inflation surprisingly remains flat at 1.3%, significantly below CPI at 3.5%. This suggests grocery retailers are fiercely competing and absorbing cost rises.”
However, Toma warned that pressures from higher energy prices mean food prices are expected to rise in the coming months.
Where did September’s rise in inflation come from?
Between August and September, inflation rose by 0.4 percentage points.
The majority of this increase came from the transport sector, but significant pressure also came from the recreation and culture sector, and housing sector.
Meanwhile, the health, alcohol and tobacco, clothing, and restaurant and hotels sectors all partially offset the rise.
When will the next inflation figures come out?
The next set of inflation figures, covering price growth in October, will be published on 18 November at 7am.
Experts believe the data will show inflation increased again in October as the UK economy continues to be hit by external economic shocks.
MoneyWeek will report on next month’s figures when they are released.
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