UK consumer price inflation rose to 3.5% in the 12 months to September 2026, up from 3.1% in August, according to the Office for National Statistics (ONS) consumer price inflation bulletin published on 21 October 2026. The reading was above the 3.4% consensus figure cited by Joe Calnan, Head of FX Dealing at iBanFirst, who commented on the data.
What the ONS reported
The ONS said CPIH, its most comprehensive measure of inflation, which includes owner occupiers’ housing costs, rose to 3.6% in the 12 months to September, from 3.3% in August.
Core inflation, which excludes energy, food, alcohol and tobacco, also rose. The ONS reported core CPI at 2.8%, up from 2.6% in August, and core CPIH at 3.1%, up from 2.9%.
Services and goods both moved higher. According to the bulletin, CPI services inflation was 3.7%, against 3.4% in August, while CPI goods inflation was 3.2%, against 2.7%.
Motor fuels the biggest driver
The ONS said transport, particularly motor fuels, made the largest upward contribution to the monthly change in both the CPIH and CPI annual rates. The bulletin put the annual rise in motor fuel prices at 29.8%.
Restaurants and hotels made the largest, partially offsetting, downward contribution, the statistics office said.
Expert reaction
Calnan said the pressure was coming mostly from imported energy rather than domestic sources, and argued that this limits what the Bank of England can do about it. He said:
“Inflation at 3.5% is uncomfortable, and a touch hotter than the market was braced for. But the pressure is still coming mostly from imported energy, gas in particular, rather than anything domestic, so there’s a limit to what monetary policy can realistically do about it.
“A 25-basis point hike in November was already close to fully priced, and today’s figure only firms that up. My concern is that the Bank of England ends up tightening into an energy shock it has no control over. Higher rates won’t bring gas prices down, but they will add to the pressure on businesses that are already facing steep borrowing costs.
“For now, sterling is the main beneficiary. The rate story has kept it well supported, particularly against the euro, and it’s held up even as long-dated gilt yields have pushed higher. That tells you investors aren’t questioning UK fiscal credibility in the way they have during past bouts of stress.
“Where it gets more interesting is next week’s Budget. Options markets are pricing in a fairly quiet event, with one-month implied volatility in GBP/USD sitting around 6.8%, and most of the major measures have already been trailed. I’d struggle to see the Budget giving the pound a meaningful lift. The risk is skewed to the downside. Weaker OBR growth forecasts or a deterioration in the fiscal outlook would put gilts back under pressure and the pound would likely soften with them. I wouldn’t expect a sustained sell-off, but businesses holding off on international payments in the hope of a better rate could find the timing works against them.”
Budget next week
Chancellor John Healey confirmed in a video message in August that the Autumn Budget would take place on Wednesday 28 October, Professional Pensions reported. That is a week after the inflation figures. Calnan pointed to the Office for Budget Responsibility’s growth forecasts and the fiscal outlook as the main risks for gilts and sterling on the day.
How the figures compare
According to the ONS, every headline and core measure rose over the month:
– CPI: 3.5% (August: 3.1%) – CPIH: 3.6% (August: 3.3%) – Core CPI: 2.8% (August: 2.6%) – Core CPIH: 3.1% (August: 2.9%) – CPI services: 3.7% (August: 3.4%) – CPI goods: 3.2% (August: 2.7%)
