UK CPI HITS 3.5%: CORE AND SERVICE INFLATION ALSO ACCELERATE
The UK CPI accelerated to 3.5% year-on-year in September, up from 3.1% and above the 3.4% market forecast, reaching its highest level since October 2025. On a monthly basis, CPI rose 0.4%, compared with 0.5% previously and expectations of 0.3%.
Underlying measures also strengthened. Core CPI rose to 2.8% from 2.6%, above the 2.7% forecast, while services inflation accelerated to 3.7% from 3.4%.
Transport inflation rose from 4.6% to 6.6%, driven mainly by motor fuel inflation, which increased from 23.0% to 29.8%. Goods inflation also accelerated from 2.7% to 3.2%, while housing and household services inflation rose to 5.3%.
Restaurants and hotels inflation eased from 4.1% to 3.8%, providing the largest downward offset, while food and non-alcoholic beverages inflation remained unchanged at 1.3%.
For the Bank of England, the stronger readings support maintaining a restrictive monetary policy stance. A November rate hike was already heavily anticipated in earlier market pricing, so attention turns to whether underlying inflation remains persistent.
For market participants, the key factors remain the UK CPI at 3.5%, core CPI at 2.8%, services inflation at 3.7%, the 3.4% CPI market forecast, motor fuel inflation at 29.8%, BoE rate expectations and the outlook for further policy tightening, which may provide further context for GBP-related markets.
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