September 2026 UK CPI Report: Inflation at 3.5%, Core 2.8%

The Office for National Statistics reported that UK Consumer Prices Index inflation rose to 3.5% in the year to September 2026, up from 3.1% in August. The figure came in above the 3.4% consensus estimate. It is the highest annual rate in 11 months.

Core inflation, which strips out energy, food, alcohol and tobacco, accelerated from 2.6% to 2.8%. Services inflation, watched closely by the Bank of England for signs of domestic wage pressure, rose from 3.4% to 3.7%. Core inflation beat its 2.7% consensus estimate. Services inflation also came in above expectations.

The ONS reported headline CPI at 3.5% for the year to September. On a monthly basis, prices rose 0.4%, above the 0.3% consensus estimate and down from 0.5% in August. The broader CPIH measure, which includes owner-occupier housing costs, climbed from 3.3% to 3.6%.

At 3.5%, headline inflation now sits well above the Bank of England's 2% target. CPI has risen for three consecutive months, from a 2026 low of 2.6% in June.

Transport was the largest upward contributor, with the category's annual rate jumping from 4.6% to 6.6%. Motor fuels led the charge: petrol and diesel prices rose 29.8% year on year. The ONS noted that diesel costs reached their highest level since July 2022.

Recreation and culture also pushed the rate higher, along with housing costs. Airfares, computer games and live-event tickets added further upward pressure. Restaurants and hotels provided the largest offsetting contribution, pulling in the opposite direction.

Core CPI rose from 2.6% to 2.8%, beating the 2.7% consensus estimate. The measure excludes energy, food, alcohol and tobacco. Those categories are prone to volatile swings, so stripping them out gives a clearer read on underlying price pressures.

Services inflation climbed from 3.4% to 3.7%, ahead of expectations. The Bank of England pays close attention to services prices because they tend to reflect domestic labour costs. A rising services rate complicates the path back to the 2% target. Food prices grew 1.3% year on year.

The Bank of England held its Bank Rate at 3.75% at the September meeting. Three of the nine Monetary Policy Committee (MPC) members voted for an immediate increase to 4%. The September CPI print strengthens the case for the majority to join them at the next meeting on 5 November.

Swap rates point to a 25-basis-point rise at the November meeting. The Bank's own projections put CPI averaging 3.75% in the fourth quarter of 2026. The rate is expected to rise to around 4% in early 2027, when a scheduled rise in the Ofgem energy price cap takes effect.

The data lands a week before the Autumn Budget, adding another variable for the MPC to weigh. Brent crude has risen more than 10% in October, keeping energy-cost pressure elevated. Interest rates and inflation tend to move together in periods of sustained price growth.

Sterling was little changed on the day. GBP/USD slipped 0.08% to 1.3373, with the above-consensus print failing to lift the currency. The 10-year gilt yield held around 5.44%, broadly steady from the previous session.

Gilt yields had been rising in the days before the data, reaching 5.38% on 16 October after stronger-than-expected GDP figures.

The October CPI data is due on 18 November. The Ofgem energy price cap rose at the start of October.

The Bank of England announces its November rate decision on 5 November. Beyond the headline number, the MPC will be watching whether core and services inflation continue to accelerate. A second consecutive above-consensus print could also raise the question of whether further tightening may be needed beyond November.

UK CPI peaked at 11.1% in October 2022, driven by the energy shock that followed Russia's invasion of Ukraine. It then fell to a trough of 1.7% in September 2024, briefly dipping below the Bank's 2% target. By mid-2025 the rate had rebounded above 3.5%, before easing to 2.6% in June 2026. It has since accelerated again, reaching 3.5% in September. That is the highest reading in 11 months.

The September data adds to a pattern of quickening price growth that began in the summer. How the Bank of England responds at its 5 November meeting will set the tone for monetary policy into 2027.

UK CPI inflation stood at 3.5% in September 2026, as reported by the ONS on 21 October. Core inflation, which excludes energy, food, alcohol and tobacco, was 2.8%. The CPIH measure, which adds owner-occupier housing costs, came in at 3.6%. All three readings rose from the previous month.

Motor fuels have been the biggest single contributor to the recent acceleration. Diesel prices are at their highest since July 2022. Petrol and diesel together rose 29.8% year on year in September. Higher costs for recreation, housing and airfares also added upward pressure.

The Bank of England held the Bank Rate at 3.75% in September, but three of the nine MPC members voted for an increase. Swap-market pricing points to a 25-basis-point rise at the next meeting on 5 November. The above-consensus CPI print strengthens the case for tighter policy.

DISCLAIMER: This article is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.