UK inflation unexpectedly remains at 3.8% in September, the Office for National Statistics reveals.
Transport made the largest upward contribution to the monthly change, while recreation and culture, and food and non-alcoholic beverages made the largest offsetting downward contributions.
While this figure is still relatively high, it is lower than expected.
Economists had widely predicted that it would reach a peak of 4% in September.
Earlier this month, Deutsche Bank chief UK economist Sanjay Raja suggested September’s reading “will likely mark the peak in inflation this year, and likely for the cycle”.
However, the International Monetary Fund said it expects UK inflation to remain above the Bank’s target for over a year.
This is a more generous forecast than the MPC gave at its last meeting in September, where it said that the cost of living will hit 4% this month, before falling back to its 2% target by mid-2027.
Last week, BoE chief economist Huw Pill warned that the bank must guard against cutting the interest rate “too far, or too fast”.
“All this supports my view that the MPC should adopt, from this point forward, a more cautious pace in withdrawing monetary policy restriction so as to ensure continuation in disinflation towards the 2% target,” said Pill at a conference in London held by the Institute of Chartered Accountants in England and Wales.
Pill, one of the more hawkish members of the MPC, added: “While I would expect further cuts in Bank rate over the coming year should the economic and inflation outlook evolve broadly as the MPC expects, it will continue to be important to guard against the risk of cutting rates either too far or too fast.”
The interest rate is currently 4%, after being cut five times since August 2024.
BoE governor Andrew Bailey last week also said that the latest round of labour market data backed his view that underlying inflation pressures were cooling.
Those official figures showed average wage growth was 4.7% in the three months to August, down from 4.8% over the three months to July.
The national unemployment rate rose slightly from 4.7% to 4.8%.
Mortgage Advice Bureau strategic lender relationship director Rachel Geddes says: “While inflation holding steady at 3.8% reflects the persistent pressures from political uncertainty and elevated costs, the mortgage market continues to remain resilient. In fact, many don’t realise they’re now in a prime position to get onto the property ladder – especially compared to this time last year, or even six months ago.”
“A ‘keep calm and carry on’ approach is needed here. While inflation remains well above the 2% target, the housing market remains in a strong place, and more aspiring buyers than ever are realising that they can get on the ladder sooner.”
“Affordability is improving, and customers are benefiting from higher average borrowing limits and a wave of new, innovative products. First time buyer appetite is strong, with a 9.7% uplift on the number of mortgage applications year-to-date.”
Meanwhile, Propertymark chief executive Nathan Emerson adds: “We still sit within a phase where the economy remains sensitive, both domestically and globally. We have seen inflation trend back upwards over the last 12 months; however, we are thankfully in a much better position than we were only three years ago, when the rate of inflation sat at 11.1%.”
“The Bank of England is still in a challenging position when it comes to making any calls to further reduce the base rate currently.”
“However, there is widespread optimism into the new year that we could see the Monetary Policy Committee consider new dips in the base rate, all of which should help provide additional affordability for many consumers regarding housing.”
