UK inflation a wake-up call for anyone expecting a November rate cut
People walk past independent retailers on Old High Street in Folkestone, England, on Friday, October 17, 2025. Inflation has increased this year across food and energy costs, and figures are expected to show inflation will reach 4% in September, twice the 2% target.
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Economists warned on Wednesday that the latest inflation data in the UK should be a “wake-up” call for those who believe the Bank of England will cut another interest rate this year.
The annual inflation rate remained unchanged at 3.8% in September, marking the third consecutive month of price increases at this level.
Data published by the Office for National Statistics (ONS) on Wednesday shows financial strain on consumers and businesses remains high, but there are hopes this could be its peak.
The Bank of England predicted at the beginning of this year that the consumer price index would reach 4 per cent in September (twice the central bank’s target) and then cool gradually towards next year. Economists polled by Reuters also expected the rate to rise to 4% in the twelve months to September.
September core inflation, which excludes more volatile energy, food, alcohol and tobacco prices, rose 3.5% annually through September, from 3.6% in August.
“The biggest driver of the increase came from oil prices and airline tickets, where the decline in prices eased compared to last year. These were offset by lower prices on a range of entertainment and cultural purchases, including live events,” ONS chief economist Grant Fitzner said on Wednesday. he said.
“The cost of food and non-alcoholic beverages has also fallen for the first time since May last year,” he added.
Chancellor Rachel Reeves said she was “not happy” with the inflation figures and said in a statement that “all of us in government have a responsibility to support the Bank of England (BOE) in reducing inflation.”
November interest rate cut seems unlikely
The data includes the BOE’s final inflation reading before its next meeting on November 6.
The prospect of a rate cut in November now looks slim, economists said on Wednesday, with the latest data offering a “wake-up” call to markets expecting the central bank to consider a rate cut next month.
They say policymakers are unlikely to cut the benchmark interest rate from 4 percent due to high inflation and weak growth. The latest data showed The British economy grew by just 0.1% monthly in August.
“Inflation near 4% should serve as a wake-up call for markets that continue to price in two more rate cuts next year,” Schroders senior economist George Brown said Wednesday. he said.
“There is a risk that high inflation will become entrenched in the UK due to a combination of disappointing productivity and sticky wage growth. We expect the Bank of England to keep interest rates steady until the end of 2026 and do not rule out that the next rate move will be upward,” he said.
ICAEW economics director Suren Thiru said in emailed comments that “despite softer than expected inflation, we agree that the chances of a rate cut in November are slim, particularly as rate-setters will likely want to analyze the inflationary impact of any measures announced in the Budget before easing policy again.”
The BOE’s Monetary Policy Committee (MPC) will certainly be cautious about intervening in interest rates ahead of the government’s Autumn Budget on November 26, when Chancellor of the Exchequer Rachel Reeves could announce tax increases alongside potentially inflation-busting spending cuts.
Reeves also signaled that he would buy ‘Targeted action’ to tackle cost of living challengesThere is also speculation that it may reduce the VAT rate on energy, a move that could ease price pressure.
According to Sanjay Raja, Deutsche Bank’s chief economist in the UK, such targeted budget measures will have significant impacts on the inflation outlook.
“News on disinflation measures has gained momentum. We will also closely monitor fuel tax changes as well as any announcements regarding VAT changes, both of which could have significant impacts on our near-term forecasts,” Raja said in emailed comments. he said.
“For now, we see that the CPI tracking is 3.4% annually, and then it will slow down to 2.6% annually in 2026. We expect the CPI to remain close to the target [2%] In 2027,” Raja added.
