UK inflation holds steady at 3.8% in September

UK inflation unexpectedly remained steady last month, as a rise in petrol prices and airfares was offset by falling food costs, according to new figures from the Office for National Statistics (ONS).

The Consumer Prices Index (CPI) rose by 3.8% in the 12 months to September 2025, unchanged from July and August. It marks the third consecutive month that inflation has stayed flat, and the 12th month in a row it has remained above the Bank of England’s 2% target. Economists had expected the figure to edge up to 4%.

The ONS said the Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 4.1% in the 12 months to August, slightly down from 4.2% in July. On a monthly basis, CPIH increased by 0.3%, compared with a 0.4% rise a year earlier.

The stability in inflation was driven by a mixed picture across spending categories. The ONS noted that air fares made the largest downward contribution to the change in both CPIH and CPI annual rates, while restaurants, hotels, and motor fuels added upward pressure.

Core inflation – excluding volatile items such as energy, food, alcohol and tobacco – also showed signs of easing. Core CPI fell to 3.6% in the year to August, down from 3.8% in July, while core CPIH slipped to 4.0% from 4.2%.

ONS chief economist Grant Fitzner said: “The largest upward drivers came from petrol prices and airfares, where the fall in prices eased in comparison to last year. These were offset by lower prices for a range of recreational and cultural purchases including live events. The cost of food and non-alcoholic drinks also fell for the first time since May last year.”

Food and non-alcoholic drink prices dropped 0.2% month-on-month, the first decline in over a year, helped by supermarket discounting and increased promotional activity. Prices linked to cultural and recreational activities also eased, with the ONS reporting a 1.6% monthly fall in the category.

The steadier-than-expected reading will be welcome news for the Bank of England, which has been attempting to bring inflation back to target through a series of interest rate rises. The latest figures suggest price pressures may be starting to ease, giving policymakers more room to consider rate cuts in the coming months.

Chancellor Rachel Reeves is also likely to view the figures positively, as a slower rise in prices points to a smaller-than-expected increase in the cost of living, and potentially a more modest rise in welfare payments next April. September’s inflation reading is traditionally used to set the annual uplift in benefits and pensions.

George Lagarias, Chief Economist at Forvis Mazars, said the figures could signal that inflationary momentum is finally weakening:

“We may be seeing the first evidence of inflation finally meeting resistance. Given expectations for an inflation uptick, it’s good news that it remained stable. Importantly, we are seeing prices down in food, beverages, recreation and culture. With unemployment rising, it is now more difficult for inflation to continue its stride upwards, and easier for the Bank of England to consider lowering rates.”

Mike Randall, CEO at Simply Asset Finance, said: “Stable inflation and steady GDP growth suggest the economy is holding its ground, with businesses continuing to show remarkable resilience in the face of higher costs. Many SMEs have already adjusted to a new baseline of operating costs and are looking for signs of longer-term stability.

“It’s important now that the Government doesn’t take this resilience for granted. Eighteen months after promising a pro-business agenda, the upcoming Budget is the moment to deliver –  with a clear plan that gives SMEs the confidence to invest and grow.”