The UK inflation rate held steady at 3.8% in September, defying expectations of a rise. This matches the August figure, which was also at 3.8%. Economists and the Bank of England had anticipated a climb to 4%. Inflation reflects the change in prices of goods and services over time, indicating that on average, prices are now 4% higher compared to a year ago.
The Office for National Statistics (ONS) releases monthly inflation data, attributing the unchanged rate to transport costs, particularly due to petrol and airfare prices not decreasing as much as the previous year. On the other hand, the prices of food, non-alcoholic drinks, and live event tickets saw declines.
The September inflation rate plays a crucial role in determining adjustments to state pension and welfare benefits for the following April. The state pension increases annually based on the highest of earnings growth, September inflation, or a minimum of 2.5%. With wage growth at 4.8% for May to July surpassing September inflation, the state pension is set to rise accordingly.
Grant Fitzner, ONS Chief Economist, noted that various price movements balanced out inflation in September, with petrol and airfares driving prices up while recreational and cultural purchases, including live events, saw decreases. This marked the first decline in food and non-alcoholic drink prices since May last year.
Chancellor Rachel Reeves expressed dissatisfaction with the current inflation figures, emphasizing the need for economic improvement and support for those facing rising costs. Inflation signifies escalating prices, where a 4% rate implies an item that cost £1 last year would now cost £1.04. The ONS calculates inflation based on a basket of goods and services, representing household expenditures, to derive an average inflation figure seen in headlines.
The Bank of England targets a 2% inflation rate, having adjusted interest rates over the past two years to combat inflation. Higher interest rates aim to reduce borrowing, limit spending, and lower demand to control inflation. However, the recent rate cuts have eased financial pressure on households, especially regarding mortgage payments. Inflation surged to 11.1% in October 2022, driven by energy and food price hikes post-Covid and exacerbated by the Ukraine conflict.
After hitting a three-year low of 1.7% in September 2024, inflation began to rise again in October.