UK CPI inflation accelerated in September as motor fuel costs jumped, and ING economist James Smith expects two Bank of England rate increases to guard against wider price and wage effects.
The Office for National Statistics said annual CPI inflation reached 3.5% in the 12 months to September, up from 3.1% in August. Transport, particularly motor fuels, contributed more than any other category to the rise in the annual CPI and CPIH rates between August and September.
Motor fuel prices climbed 29.8% over the year. Food and nonalcoholic beverage prices fell 0.2% from August, leaving their annual inflation rate unchanged at 1.3%. Core CPI inflation, which excludes food, energy, alcohol and tobacco, rose to 2.8% from 2.6%; services inflation increased to 3.7% from 3.4%. The data do not establish that higher energy costs caused the increase in core or services inflation.
The Bank of England (BoE) held Bank Rate at 3.75% in September, with its 6-3 vote in September split between six members who favored no change and three who preferred a 0.25 percentage-point increase. The Bank’s minutes said indirect effects from higher energy prices had been limited so far, but could emerge later. Its September projection put inflation around 3¾% in the fourth quarter of 2026 and slightly above 4% in the first quarter of 2027, based on energy prices observed on Sept. 14.
ING’s forecast calls for increases in November 2026 and February 2027. Smith also expects inflation to briefly reach 4% this winter and sees cuts potentially resuming by November 2027 and continuing into 2028 if broader effects remain contained. These are ING’s projections, not Bank guidance. ING’s note said policymakers have historically treated a winter peak near 4% as a possible warning sign for further price and wage effects.
The Bank has linked higher energy prices to disruption of energy transportation and supply amid the Middle East conflict. Households face higher fuel and utility bills, while the Bank said businesses may pass energy costs through to prices. The BoE’s next rate decision is scheduled for Nov. 5, 2026, and the ONS plans to publish its next inflation report on Nov. 18.
