UK Inflation Jumps to 11-Month High of 3.5% in September, Cementing Bank of England Rate Hike Expectations

UK consumer price inflation accelerated sharply to 3.5% in the year to September 2026, up from 3.1% in August and above the 3.4% forecast, reaching its highest level in 11 months according to data from the Office for National Statistics. Surging fuel prices were cited as the primary driver. On a monthly basis, CPI rose 0.4%, beating the 0.3% consensus estimate.

Underlying price pressures also broadened. Core CPI held at 2.8% year-on-year, in line with forecasts but up from 2.6% the prior month. Services inflation climbed to 3.7% annually from 3.4%, above the 3.6% estimate. CPIH, which includes owner-occupier housing costs, rose 3.6% year-on-year against a 3.5% forecast.

Producer price data painted a more alarming picture of pipeline pressure. Input PPI surged 8.3% year-on-year in September, well above the 7.6% forecast and up sharply from 6.1% previously, while the monthly reading came in at 1.5% against a 1.4% estimate. Output PPI rose 4.6% annually, also beating forecasts of 4.4% and up from 3.7% the prior month, with the monthly reading at 0.8%.

The data landed ahead of the government's upcoming Budget and ahead of a Bank of England meeting that investors already expected would deliver the first rate increase since the start of the U.S.-Iran conflict. The hot inflation print intensified those rate hike expectations and added pressure on policymakers to act in November. Sterling struggled to gain ground on the news, with GBP/USD remaining below 1.3400, while the FTSE 100 slipped on the data.

Separate public finance figures released alongside the inflation data showed the UK's budget deficit widened significantly. Public sector net borrowing in September came in at 24.5 billion pounds, above the 24.0 billion estimate and sharply higher than the 18.3 billion recorded a year earlier. The April-to-September cumulative deficit reached 97.8 billion pounds, running well above the OBR's full-year forecast of 91.8 billion pounds, adding further fiscal pressure ahead of next week's Budget.