UK inflation accelerates to 3.5%, beating forecasts as fuel and services prices rise
Key Facts
Britain's annual inflation rate accelerated to 3.5% in September 2026 from 3.1% in August, according to the Associated Press, with the reading coming as markets anticipated UK interest rate increases. The rise exceeded estimates from economists polled by Reuters, who had expected the annual rate to reach 3.4% during the month. On a monthly basis, the consumer prices index rose 0.4% in September, according to Britain's Office for National Statistics. The acceleration extended to services prices, with annual inflation rising to 3.7% from 3.4% in August, Reuters reported. The services reading also exceeded economists' forecast of 3.6%, alongside headline inflation's overshoot of the poll estimate. Core inflation, which excludes food, energy, alcohol and tobacco, rose to 2.8% in September from 2.6% in August, according to the agency.
Breaking down the increase, the Associated Press reported that motor fuel prices rose about 30% year-on-year in September, compared with an increase of about 23% in August. Annual inflation in the transport sector accelerated to 6.6% during the same month from 4.6% in August, according to the Office for National Statistics. The rise in inflation rates extended to goods, with annual price growth reaching 3.2% in September after 2.7% in the previous month, the office said. At the factory gate, producer prices rose 4.6% year-on-year in September, according to Reuters' report on British inflation data. Annual growth in manufacturing input costs accelerated to 8.3% from 6.7% in August, alongside rising prices for goods purchased by consumers.
The inflation reading follows the Bank of England's September decision to keep its benchmark interest rate at 3.75%, according to the Monetary Policy Committee's statement. The hold was approved by 6 votes to 3, with dissenting members preferring to raise borrowing costs at that meeting. Describing their position, the bank said they preferred to "increase Bank Rate by 0.25 percentage points, to 4%", rather than maintain its existing level. In the labour market, the estimated unemployment rate stood at 4.7% in the period from June to August 2026, according to the Office for National Statistics. During the same period, regular pay, excluding bonuses, grew 3.7% annually, the office said, alongside the unemployment data released ahead of the next monetary policy decision.
In currency markets, sterling rose 0.1% to $1.339 during trading on 21 October 2026, according to Reuters. Data compiled by the London Stock Exchange Group and cited by the agency in its report that day showed markets expected 4 UK interest rate increases by mid-2027. In a subsequent update on 22 October, Reuters said outflows from euro zone assets had helped British markets outperform others in the region. That outperformance included British equities and bonds, according to the agency, alongside the currency's performance. Sterling also benefited from those flows, as well as expectations of interest rate increases reflected in market pricing the previous day.
Britain's upcoming release calendar begins with September retail sales data, scheduled for publication on 23 October 2026, according to the release date announced by the Office for National Statistics. The office set a release time of 7:00 a.m. UK local time for the sales data, ahead of the Bank of England's next meeting. The next interest rate decision is due on 5 November 2026, according to the schedule announced in the bank's September meeting statement. The Office for National Statistics scheduled the next labour market data release for 17 November 2026, after the monetary policy decision. The consumer price inflation report follows on 18 November 2026, according to the office, placing both releases after the bank's meeting.