UK inflation accelerates to 3.5% in September, above forecasts

what happened

UK consumer price inflation picked up to 3.5% in September from 3.1% in August, according to the Office for National Statistics. Dow Jones Newswires reports that economists polled by The Wall Street Journal had expected a slightly lower 3.4%.

Core inflation, which excludes food and energy, rose to 2.8% from 2.6% and came in above expectations. Services inflation climbed to 3.7% from 3.4% a month earlier. The Bank of England kept its rate at 3.75% in September, but investors increasingly expect a rise at its November 5 meeting. In September the central bank projected inflation near 3.75% in the fourth quarter of 2026 and slightly above 4% in early 2027.

Policymakers' key question is how much of the price rise stems from energy and whether it spreads into wages and prices in other sectors. Weekly earnings growth excluding bonuses over the three months to August is also being watched closely.

why it matters

For markets, the figures strengthen the case for tighter policy in Britain, which typically supports sterling but weighs on gilt prices. The government budget due on October 28 adds another layer of pressure, as it could raise spending and borrowing costs. Schroders economist David Rees warns that food and goods prices could push CPI towards 4%.

market impact

GBP and gilts: higher odds of a BoE hike support sterling but pressure bond prices

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