UK inflation climbs to 3.5% in September on fuel price surge
Britain's annual inflation rate rose to 3.5% in September, exceeding the 3.4% median forecast from economists polled by Reuters, as petrol and diesel prices jumped sharply. The upside surprise strengthens the case for a Bank of England rate hike next month.
This was the third consecutive monthly rise, after figures of 3.1% in August and 2.9% in July, and the highest annual rate of price growth the country has seen in almost a year, the Office for National Statistics (ONS) reported.
The ONS attributed much of the increase to transport fuel, with pump prices up 29.8% year-on-year — the largest annual jump since August 2022. Britain’s heavy dependence on imported energy leaves it exposed to global supply shocks, including the fallout from the US-Iran conflict and the resulting disruption around the Strait of Hormuz.
The pound barely reacted against the euro and the dollar after the release, and UK government bond yields also held steady.
Scott Gardner, who works as an investment strategist at J.P. Morgan Personal Investing, said the renewed rise in headline inflation had erased gains made earlier in the year. He suggested that faster growth in services prices could point to inflationary pressures spreading beyond energy costs into broader parts of the economy.
Money markets now assign a 98% probability that the Bank of England will raise its main interest rate by 25 basis points to 4% at its November meeting, according to LSEG data, with many traders also expecting a further hike in December.
The data adds pressure on the government ahead of Chancellor John Healey’s first Autumn Budget, scheduled for next week. Separate figures showed UK national debt surpassed £3 trillion (about $4 trillion) in September for the first time, with borrowing costs rising sharply. Healey said he would stick to fiscal discipline while still trying to ease the strain on household finances. Suren Thiru, who holds the role of chief economist at the Institute of Chartered Accountants in England and Wales, said rising prices were narrowing the Chancellor’s room to maneuver.
Why it matters: A stronger-than-expected UK inflation reading for September reinforces the case for Bank of England tightening, a shift that could move the pound and gilt yields, while adding strain to public finances just ahead of the budget.
Source: CNBC (economy)