UK inflation accelerated more sharply than expected in September 2026, raising fresh concerns about the cost of living and putting pressure on the Bank of England to reconsider its interest-rate outlook.
The Consumer Prices Index (CPI) rose by 3.5% in the year to September, up from 3.1% in August, according to figures released by the Office for National Statistics on Wednesday 21st October 2026.
Higher than expected
The increase exceeded economists’ expectations of 3.4% and was higher than the Bank of England’s previous forecast of 3.0%.
Rising petrol and diesel prices were the main drivers, reflecting higher global energy costs amid the ongoing conflict involving Iran.
The increase in fuel costs threatens to feed through into transport, deliveries and other business expenses, potentially pushing up prices elsewhere in the economy.
Core inflation
Underlying inflationary pressures also strengthened. Core CPI, which excludes energy, food, alcohol and tobacco, increased to 2.8% from 2.6%. Services inflation, closely watched by policymakers, climbed to 3.7% from 3.4%.
The figures complicate the outlook for interest rates. With UK inflation moving further away from the Bank’s 2% target, expectations of a possible rate increase in November 2026 may strengthen, although weaker economic growth could argue against tighter policy.
The latest data also arrives ahead of the government’s forthcoming Budget, intensifying pressure to address household spending pressures.
For financial markets, the combination of rising inflation and uncertainty over borrowing costs could prove uncomfortable for both government bonds and equities.