UK Inflation Rises to 3.5% as Retail Sales Fall Monthly in September
Key Facts
The UK consumer price index rose to 3.5% in the 12 months to September 2026, compared with 3.1% in August, according to the Office for National Statistics. The reading came alongside a 0.4% monthly decline in retail sales volumes in September. They were still 0.8% above their level a year earlier, according to the office’s data. The figures present contrasting paths for prices and consumer spending as the UK budget announcement approaches. They also show that the headline inflation reading does not measure shop prices alone, as it covers a broader basket of goods and services.
Core inflation, which excludes energy, food, alcohol and tobacco, rose to 2.8% in the 12 months to September, from 2.6% in August, according to the Office for National Statistics. This measure provides a reading of prices after excluding those specified components, while headline inflation was 3.5% over the same period. The office said transport, particularly motor fuels, was the largest upward contributor to the monthly change in the annual rates of CPI and CPIH inflation in September. This points to the role of fuel prices in driving the monthly movement in both measures. The figures relate to September and do not represent October data, which had not yet been scheduled for release.
On the demand side, retail sales volumes fell 0.4% in September after rising 0.7% in August, according to the Office for National Statistics. Year on year, volumes were 0.8% above their level a year earlier. The difference between the two comparisons shows that the monthly decline did not erase the annual increase in sales. A change in sales volumes does not necessarily mean a corresponding change in their monetary value, as the office’s data here cover volumes. This divergence places spending within the broader context of price pressures, without changing the annual inflation reading published for the same month.
The Bank of England kept its interest rate at 3.75% at its meeting ending in September, after a majority of 6 members to 3 voted to hold it. The three members voted to raise the rate by 0.25 percentage points to 4%, according to the bank’s minutes. The bank said consumer price inflation, which was 3.1% in August, was likely to rise over the coming quarters. It also said direct and indirect increases in energy prices could push inflation to around 3¾% in the fourth quarter of 2026, compared with 3.2% at the time of its July report, and then to slightly above 4% in the first quarter of 2027. It said risks to the inflation outlook were tilted to the upside and affirmed its readiness to act to ensure inflation remains on a path to meet its 2% target in the medium term.
The UK budget is scheduled for October 28, 2026, according to the Treasury, making it the next domestic calendar event before the next inflation reading. The Office for National Statistics set November 18 as the release date for consumer price data for October. The Bank of England’s next monetary policy decision is due on November 5. These dates follow the September reading, which recorded headline inflation of 3.5% and core inflation of 2.8%. The upcoming October data will provide an update on prices after this reading, with the bank meeting and budget date coming first.