Inflation data for September is being released and will impact how much benefits and rail fares rise next year. Money blog reporter Jess Sharp brings you everything you need to know in our consumer and personal finance hub.
Wednesday 22 October 2025 08:05, UK
We’ve just had the shadow chancellor’s reaction to today’s inflation data, and unsurprisingly he has blamed government policies for keeping it high.  
Mel Stride said Labour was “punishing” the people it “promised to protect” by falling to bring down the cost of living. 
“Starmer and Reeves do not have the backbone to sort this mess out,” he said. 
“This financial year Labour have borrowed £100bn because they do not have the backbone to reduce spending. Combined with her £25bn ‘jobs tax’, Rachel Reeves is pushing inflation higher and higher.” 
“Jobs tax” is likely a reference to the April hike in employer national insurance contributions.
We should get an idea of what lower-than-expected inflation could mean for interest rates once market forecasts are updated around 8am.
But economists at Capital Economics have released their response already.
They say it’s unlikely to prompt a cut in November but “it increases the chances of the next cut happening by February in line with our forecast and it supports our view that interest rates will be reduced to 3% next year”.
The firm also says “this will probably be the peak in inflation”.
“Our forecast is for CPI inflation to fall to 3.5% or below in October, not least due to the declines in utility and fuel prices that we already know about. 
“Food price inflation may yet rise further, perhaps back above 5.0% by December, but there are three good reasons to expect it to fall back next year.”
While the overall cost of food fell for the first time since May last year, the price of beef has increased. 
The rate of price rises for the meat jumped to 27.5% in the year to September – up from 25.7% in August. 
Spiralling costs have hit the beef market hard in recent years, along with a change in trends, and the structure of the subsidy regime since Brexit.
Our business and economics Paul Kelso has been looking at the impact it’s had on the market… 
Business correspondent Paul Kelso says inflation coming in flat at 3.8% is a sliver of good news – but only if this is the peak of the current inflationary cycle.
Kelso points out that the 3.8% figure is still nearly double the bank’s target. He explains:
“It is high inflation. It’s high relative to the UK’s European peers. It’s higher than anyone would want. But there’s a sliver of good news here because this was expected to be about the forecast, widely 4%, possibly a little higher. Most people, including the Bank of England, think this will be the peak of inflation for very statistical reasons. So if nearly double the Bank of England rate can be a sliver of good news, it is… the underlying figures are also encouraging.”
Kelso adds that core inflation fell slightly, if you take out alcohol, tobacco and fuel commodities.
Chancellor strikes first
Chancellor Rachel Reeves acted pre-emptively at a government event last night ahead of the figures, Kelso adds.
“She let it be known… that she’ll be calling cabinet ministers together tomorrow to prioritise cutting the cost of living and bringing down inflation.”
One thing she flagged was bringing down energy prices, showing, Kelso says, she was braced for the worst this morning.
“3.8% isn’t great, but if it is the peak and the peak in this inflationary cycle, then that will be welcome,” Kelso says.
Watch his full breakdown here…
Chancellor Rachel Reeves has given her response to the lower-than-expected inflation data.
Remember, inflation is often dictated by factors beyond the government’s control – wars, global economics etc.
However, Reeves has been blamed for an uptick in price rises this year after her last budget imposed additional minimum age and national insurance costs on businesses.
That’s the context – here’s what she’s said this morning:
“I am not satisfied with these numbers. For too long, our economy has felt stuck, with people feeling like they are putting in more and getting less out.
“That needs to change. All of us in government are responsible for supporting the Bank of England in bringing inflation down. I am determined to ensure we support people struggling with higher bills and the cost of living challenges, deliver economic growth and build an economy that works for, and rewards, working people.”
Lower-than-expected inflation data is good news for those hoping for interest rate cuts.
Rates are kept high to stem spending and, in turn, slow price rises.
Two figures beyond the headline rate of 3.8% also came in below economist expectations.
Core inflation, which strips out volatile elements such as fuel and energy, dropped from 3.6% in August to 3.5% in September.
Services inflation, which is largely made up of wages, remained unchanged at 4.7% – below the 4.9% forecast by analysts.
Inflation remained the same in September at 3.8%, the latest Office for National Statistics figures show. 
While the figure is still relatively high, it’s lower than expected. 
Economists had widely predicted that it would reach a peak of 4% in September before starting to fall. 
September’s figure is particularly important because it helps inform how much benefits go up next year.
“A variety of price movements meant inflation was unchanged overall in September,” said ONS chief economist Grant Fitzner. 
“The largest upward drivers came from petrol prices and airfares, where the fall in prices eased in comparison to last year. 
“These were offset by lower prices for a range of recreational and cultural purchases including live events. The cost of food and non-alcoholic drinks also fell for the first time since May last year.” 
Rises in benefits and pensions are hooked to September’s inflation data.
Millions of benefit claimants will, by law, see an increase next April of whatever headline CPI figure is announced at 7am.
September’s figure is also used as part of the triple lock, which guarantees the state pension rises each April by whatever is highest from: average wage growth, inflation or 2.5%. Next year, wages are likely to be the highest of these as they grew by 4.8% between May and July.
Benefits
These benefits and tax credits are linked to inflation by law:
For the rise earlier this year, the government also pledged the same increase for benefits including:
At 7am, we’ll get the latest inflation data, with economists widely expecting it to rise to 4% for September – up from 3.8% in August. 
Inflation tells us the rate at which prices are rising, so it directly affects our cost of living. If wages fail to increase at the same pace, the value of your money decreases.
It is affected by lots of different factors, including global conflicts and international trade policies.
In the UK, inflation is measured monthly – comparing how much prices are going up to the same time a year previously.
The headline inflation figure, which you’ll see a lot in the news, measures price rises across a range of products that we need in our daily lives.
The most commonly used inflation index is the Consumer Price Index, which the government has a target of getting to 2%.
One thing to note is that falling inflation doesn’t mean prices are coming down – just that they’re rising less quickly. You’d need a minus figure, or negative inflation, to see prices fall overall.
How does inflation affect interest rates?
The Bank of England raises interest rates to try to slow spending and encourage saving – when this happens, prices/inflation tend to come down.
When inflation falls, interest rates tend to.
Potential winners and losers from high inflation
Overall, a high and volatile rate of inflation is widely considered to be damaging for the economy, but there are some people who could benefit from it.
Workers with wage bargaining power (perhaps those who belong to strong trade unions) can come off better, as they can protect their incomes by bidding for higher wages.
Producers could end up benefiting if their prices rise more quickly than their costs.
People with stocks or property could also see the value of their assets rise if there is a sustained period of price inflation.
However, retired people on fixed incomes are likely to be worse off as inflation cuts the real value of their pensions and other savings.
The poorest will also feel the pinch more as the costs of borrowing, food and domestic utilities are high. 
Finally today, American Express customers can claim £50 from stays at selected Hilton Hotels as part of a new cashback deal.
The bank is offering its users the cashback sum if they spend £200 on their card with the hotel chain by 31 December.
Cumulative spend is included in the deal, meaning that customers do not need to fork out £200 in a single transaction.
Existing bookings are included, provided they have not already been prepaid.
Customers should get the cash credited to their account balance within 30 days of the transaction being made, but Amex has said it could take longer. 
Where can I find the deal?
The deal will appear on the Offers page in your American Express app, which you need to select to add to your card. 
The deal is valid once per card for the first 40,000 customers. 
What destinations are included?
The deal includes more than 150 Hilton hotels across the UK and a handful in the USA.
It also applies to 30 other countries across Europe, the Middle East and Africa, including Egypt, the Seychelles and South Africa.
You can check the full list of participating hotels here. 
Be the first to get Breaking News
Install the Sky News app for free

source