UK inflation rate holds at 3.8% for third month in a row

UK inflation held steady at 3.8% in September, defying forecasts of a rise to 4%, according to data from the Office for National Statistics (ONS). The surprise reading has strengthened expectations that the Bank of England could cut interest rates before the end of the year.

Falling food prices – for the first time since May 2024 – and lower live music costs helped offset higher fuel prices. Services inflation, closely watched by the Bank as a measure of domestic price pressures, was unchanged at 4.7%.

Following the release, the pound slipped 0.3% to $1.3333, while traders increased their bets on a December rate cut, putting the probability at around 70%.

Analysts said the stable inflation figure suggests the worst of the recent price surge may have passed.

“While inflation remains nearly double the Bank’s 2% target, September’s reading gives policymakers some reassurance that the UK’s inflation problem is not as chronic as feared,” said Martin Beck, chief economist at WPI Strategy.

Chancellor Rachel Reeves has pledged to deliver anti-inflation measures in her budget on November 26, hinting at action to contain regulated price pressures. The September CPI figure will be used to uprate working-age benefits from April, meaning payments will rise less than expected, slightly easing pressure on public spending.

Despite the moderation, the Bank of England is unlikely to cut rates in November, just weeks before the government’s crucial budget. However, growing signs of economic stagnation and a weakening jobs market have raised the likelihood of a move in December.