Rachel Reeves was handed a pre-Budget boost today as the rate of inflation unexpectedly remained unchanged at 3.8% in September.
Rachel Reeves was handed a pre-Budget boost today as the rate of inflation unexpectedly remained unchanged at 3.8% in September.
It was the third month on the trot that the Consumer Prices Index (CPI) has stayed at the same level. Many City forecasters had feared that the CPI could have hit 4% and some commentators today said that the recent inflation resurgence may have peaked.
The slower than expected rise in inflation - described by one commentator as “light at the end of a very dark tunnel- opens the door to a potential cut in interest rates next month from the Bank of England.
The Chancellor was helped by a marked slowdown in food inflation, which fell to 4.5% in September down from 5.1% in August. It was the first time since March 2025 that the annual rate has dropped.
There was also a big fall in live music prices, which fell by 8.6% compared with a rise of 5.8% a year ago. The average price of petrol fell by 0.2 pence per litre between August and September.
However, inflation remains higher in the UK than in most other major western economies. Nevertheless the better than expected figure will list lift the mood at Number 11 after a series of grim economic figures.
Neil Birrell, CIO at Premier Miton Investors, said: "At last there is some good news for the Chancellor, and the rest of us, on the inflation front. With growth stagnant, national debt extreme and a tough budget coming up, the UK feels under the cosh. One good inflation number won't push the Bank of England into a rate cut, which the economy could do with, but maybe there is some light at the end of a long dark tunnel."
Rachel Reeves said: “I am not satisfied with these numbers. For too long, our economy has felt stuck, with people feeling like they are putting in more and getting less out.
“That needs to change. All of us in government are responsible for supporting the Bank of England in bringing inflation down. I am determined to ensure we support people struggling with higher bills and the cost of living challenges, deliver economic growth and build an economy that works for, and rewards, working people.”
Jeff Brummette, chief investment officer at independent investment manager Oakglen Wealth said: “The Bank of England’s Monetary Policy Committee is faced with a challenge, with CPI remaining at 3.8%, well above the 2% target. But with the latest labour market data showing a softening in both demand and wage growth, this may not stop them lowering rates at their November meeting.
“Governor Bailey has publicly remarked that the UK economy is running ‘below potential’, and a 25bps rate cut could be seen as sensible risk management ahead of what is likely to be a tightening of fiscal conditions in the Chancellor’s much-awaited Budget.”
The 3.8% CPI means that the state pension is certain to rise by 4.8% next year under the “triple lock” guarantee. Steven Cameron, pensions director at Aegon, said: “Today’s inflation figure of 3.8%, unchanged since last month, is the final piece in the state pension triple lock jigsaw. The triple lock formula increases state pensions each year by the highest of price inflation - now confirmed as 3.8%- , earnings growth (4.8%), or a minimum of 2.5%. This means next April’s increase should be 4.8%, in line with earnings growth.”
“This should be good news for pensioners, representing an increase of 1.0% above inflation, providing a welcome boost to pensioner purchasing power from next April.”
This article was written by Jonathan Prynn from The Evening Standard and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.