Inflation data for September came in lower than expected at 3.8% and it will impact how much benefits 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 09:20, UK
With inflation coming in lower than expected, the chances of one more interest rate cut this year have improved. 
Markets are almost fully pricing in a 25bps cut at the Bank of England’s rate setting meeting on 18 December. 
Yael Selfin, chief economist at consultancy firm KPMG UK, said the 3.8% rate of inflation had kept a rate cut “on the table this year”. 
“While underlying price pressures remain elevated, services inflation came in below the Bank of England’s expectations. As a result, we think the door remains open for one final cut in December this year, particularly once policymakers have more clarity on fiscal policy following the budget, in addition to further expected loosening in the labour market,” she said. 
Rob Wood, chief UK economist at Pantheon Economics, said the Bank’s Monetary Policy Committee was now more likely to bring forward its expected cut in February to December. 
“We still think the MPC will skip November – the growth data and stabilising jobs suggest they can afford to wait still – and the 26 November budget also seems worth waiting for, as well as another round of inflation data,” he said. 
We already knew this but…
…the 3.8% inflation figure for September confirms that the state pension will now rise by 4.8% in April.
The triple lock guarantees the state pension rises each April by whatever is highest from: average wage growth, inflation or 2.5%. 
We now know for certain that wage growth is the highest of these – it came it at 4.8% between May and July.
The UK continues to have the highest inflation rate among the G7.
The US, Canada, France, Italy and Germany all recorded inflation rates lower than 3.8% in September 
We are still waiting for the US and Japan to release their latest data, which is why it’s not included in the table below, but in August, prices rose at a rate of 2.7% and 3.1% respectively. 
We’ve also included the inflation rate in the eurozone – the countries that use the euro –  for comparison. 
Knowledge gaps around inflation have been exposed by a survey of 2,000 adults.
Nearly two thirds (63%) told Aviva they had good financial knowledge, and more than half (56%) said they had a good understanding of inflation.
However, nearly three quarters (73%) didn’t, or only vaguely, knew why it was important to understand inflation and almost half of those surveyed (45%) said they didn’t understand how the monthly rate of inflation was calculated.
This number is much higher for women (59%) than men (30%). 
In addition, one in five (22%) think the rate of inflation can only increase.
You can read our inflation explainer here…
By James Sillars, business and economics reporter 
Those inflation numbers this morning were not as bad as feared.
As such, they’ve helped bring the prospects for interest rate cuts back to the table.
LSEG data shows a leap in financial market bets for a December reduction to 3.75%.
Most economists and analysts had been plumping for no change until February ahead of this morning’s data.
A majority of financial market participants still see no change at November’s meeting – probably because the Bank of England will want to see more evidence that inflation has peaked.
Concerns may include measures implemented in the looming budget clouding its forecast that inflation should start to ease substantially in the first half of 2026.
Other market reaction seen so far has been a fall in the value of the pound.
It’s lost half a cent against the US dollar.
The easing to $1.33 can be explained by those growing interest rate cut expectations, as higher rates are generally supportive of a domestic currency.
One of the main drivers behind today’s inflation figure is transport. 
Petrol prices and airfares failed to fall by as much as they did last September, pushing up inflation. 
But the impact was offset by a fall in food and non-alcoholic drinks prices, which dropped for the first time since May last year. 
“In a bit of good news for consumers, food and non-alcoholic prices made the biggest downward contribution to the latest data, with food inflation ticking downwards to 4.5% in September from 5.1% in August,” said Alice Haine, personal finance analyst at the online investment platform Bestinvest. 
“Comfortingly, core inflation, which excludes volatile items such as food, alcohol and tobacco, eased to 3.5% in September from 3.6% in August, while services inflation remained at 4.7%. 
“Sticky inflation will prolong the pain for households already grappling with post-pandemic increases to living costs. It also poses a challenge for Chancellor Rachel Reeves as she prepares her autumn budget.” 
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 had “promised to protect” by failing to bring down the cost of living. 
“Starmer and Reeves do not have the backbone to sort this mess out,” he said. 
He added: “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…
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