UK inflation rises to 3.5% in September, lifting rate-hike expectations

UK inflation in September 2026 rose to 3.5% from 3.1% in August, according to figures released by the Office for National Statistics on Oct. 21. The reading gives investors a fresh data point ahead of the Bank of England’s next decision, with markets pricing a high probability of an interest-rate increase rather than a decision that has already been made.

The Consumer Prices Index, or CPI, increased 0.4% during September after showing little change in the same month a year earlier, the ONS said. The annual result was slightly above the 3.4% forecast in a Reuters poll reported by CNBC. The Wall Street Journal separately reported a 3.4% consensus from its own economist survey.

The ONS also reported that CPIH, a broader inflation measure that includes owner-occupiers’ housing costs, rose 3.6% over the year, up from 3.3% in August.

What drove UK inflation higher in September 2026?

Transport, especially motor fuels, made the largest upward contribution to the increase in both CPI and CPIH inflation, according to the ONS. Restaurants and hotels made the largest downward contribution, partly offsetting the rise. CNBC, citing ONS data, reported that motor-fuel prices were 29.8% higher than a year earlier.

The official figures also showed price growth accelerating outside the headline measure. Core CPI, which excludes energy, food, alcohol and tobacco, rose 2.8% year over year, compared with 2.6% in August. Goods inflation increased to 3.2% from 2.7%, while services inflation rose to 3.7% from 3.4%.

That wider acceleration is relevant to the rate debate. Scott Gardner, an investment strategist at J.P. Morgan Personal Investing, said in a note reported by CNBC that services inflation had accelerated in recent months. He said this could concern policymakers as a sign of second-round inflationary effects beyond energy.

What are markets expecting from the Bank of England?

LSEG data cited by CNBC showed markets assigning a 98% probability to a 25-basis-point rise in the Bank of England’s key rate to 4% at the following month’s meeting. CNBC also reported that most traders were pricing another increase of the same size at the central bank’s December meeting.

Those prices reflect investors’ expectations, not a commitment from the Bank of England. The September CPI rate was the highest since October 2025, according to the ONS.

Market moves following the release were limited in the assets CNBC tracked: sterling was flat against the dollar and the euro, while yields on UK government bonds were little changed.

The next scheduled UK consumer-price inflation release is Nov. 18, according to the ONS.

This story draws on original reporting from CNBC.