Consumer Prices Index Inflation Holds Third Month in Row at 3.8%

The Office for National Statistics (ONS) has this morning released UK inflation figures for September 2025.

This is the third consecutive month that inflation has held at 3.8% pa.  It was forecast to be 4.0% pa, so this is a little better than forecast but is still nearly double the Bank of England’s target of 2.0% pa.

‘Flat lining’ inflation is not great news and gives little room for manoeuvre for the Bank of England on interest rate cuts, next week on 6 November 2025.  That said, given it was forecast by be higher, there is some ‘glimmer of hope’ for our embattled Chancellor, as prices are still high, but the economy is slowing down but showed another glimmer with a 0.1% increase in GDP for August, so the Chancellor must stimulate the economy rather than squeeze it.

That said, we expect the Autumn Budget to be yet another painful one for tax rises on 26^th November, which may push to economy further down the road to recession or economic slowdown.

On a happier note, the old measure of inflation, Retail Prices Index (RPI) has fallen again but only by 0.1% pa.

Falls in Prices (largest falls 1^st)

• Communication,
• Recreation and culture,
• Furniture and household goods,
• Miscellaneous goods and services,
• Education,
• Alcohol and tobacco,
• Housing and household services.

Rises in Prices (largest rises 1^st)

• Transport,
• Food and non-alcoholic beverages,
• Clothing and footwear,
• Restaurants and hotels,
• Health.

RPI Falls 0.1% pa to 4.5% pa

The old measure of inflation RPI, an arithmetical mean of the average prices of a basket of household spending (rather than the geometric mean for CPI) and still our preferred measure of real inflation and is still at late 2023/early 2024 figures.  This has fallen for a second consecutive month but it still higher than it was in June, so only a very small amount joy here for the Bank of England and the Chancellor.

Comment

Last month, we suggested that the Federal Reserve in the US would cut interest rates, and they did.  We thought the Bank of England may follow suit, but they held rates at 4.0% pa.  With today’s CPI figure lower than forecast but holding at 3.8% pa, it is better news than expected, but it is still essential items prices for transport, food and non-alcoholic beverages, clothing and footwear that are still rising.  This is not great news.  The pressure on our pockets is still there. 

The Bank of England will be ‘walking a tightrope’ on 6 November.  If they hold interest rates and then the Chancellor hits us with huge tax rises in the Budget, recession may be unavoidable.  Last month, just 2 of the 9 Monetary Policy Committee members voted to cut rates, we believe the vote on the 6 November will be as close as 5:4 and it could go either way. 

Key dates for us all:

• Next Bank of England MPC interest rate decision 6 November 2025.
• Next ONS inflation report 19 November 2025.
• Autumn Budget 26 November 2025.