UK inflation unexpectedly remains at 3.8% for third month in a row | Inflation

Inflation in the UK remained unchanged at 3.8% last month, surprising expectations for a rise; That’s welcome news for Chancellor Rachel Reeves, who plans her critical budget next month.

The Office for National Statistics said that inflation, as measured by the consumer price index, remained at the same level in September as in August and July.

City expectations had pointed to a reading of 4%, but the ONS said upward pressure from transport prices was offset by a slowdown in “leisure and culture” inflation, including slightly cheaper food and live music tickets.

The September reading raised hopes that the Bank of England could cut interest rates sooner than previously expected; Markets have placed bets on the first full quarter-point cut from March to February next year.

Rising food prices, driven in part by climate-related factors, are causing increasing concern. Policymakers will likely welcome food prices falling 0.2% from August, the first monthly decline since May last year.

Annual food price inflation slowed down for the first time since March, falling from 5.1% in August to 4.5%.

Another source of downward pressure on inflation comes from the “leisure and culture” sector, which includes theater and cinema trips, the ONS said.

While prices here remained stable on a monthly basis, ONS particularly pointed out live music; Prices here dropped 8.6% compared to August.

These weak areas offset higher prices from transportation, especially oil and airline tickets. The ONS said transport costs rose 3.8% year on year, above the annual rate of 2.4% in August.

Although the inflation rate of 3.8% in September was lower than expected, it remained well above the government’s 2% target, and the CPI has exceeded this level for 12 consecutive months.

Reeves said: “I’m not happy with these figures. For too long our economy has been stuck; people have felt like they were investing more and coming out less. This needs to change. As a government we all have a responsibility to support the Bank of England to reduce inflation.”

Reeves said last week he would announce a number of “policies” in his November 26 budget to “bring down” some of the costs people face.

The Bank of England has highlighted the importance of “administered” prices, such as energy bills and transport charges, in driving up consumer costs.

The chancellor is expected to meet cabinet ministers on Thursday to ask what each department can do to help combat rapid cost rises.

The International Monetary Fund last week predicted that UK households will experience the highest inflation rate in the G7 this year and next.

The September CPI rate is used to raise a range of benefits, including universal credit, disability payments and state pensions. However, under the “triple lock” promise, next year’s state pension increase will be determined by a higher reading of 4.8% of annual pay growth excluding bonuses in the three months to the end of July.

Taxes on alcohol and tobacco and the price of train tickets traditionally rise in line with the retail price index reading in September; It substitutes for a separate measure of inflation for many other purposes.

The ONS said PPI inflation in September was 4.5%. However, the increase will not be decided until the budget, and Reeves may choose to implement lower increases as an inflation-fighting measure.

Policymakers on the bank’s nine-member monetary policy committee are concerned about an unexpected resumption of inflation. No reductions are expected at the Nov. 6 meeting, which will be held shortly before Reeves’ budget, but the last meeting of 2025 will be held on Dec. 18.

Economist Thomas Pugh, of consultancy RSM, said: “Inflation is likely to fall only gradually from here, so we doubt this will be enough to persuade the Bank of England to cut interest rates next month. “But this puts the December rate cut back on the agenda.”

The bank’s last forecasts, published in August, suggested inflation would peak at 4% in September and then fall towards the 2% target over the next year.