Annual consumer price inflation in the UK rose to 3.5% in September 2026, its highest since October 2025, from 3.1% in August, the Office for National Statistics (ONS) said.
The higher-than-expected reading comes one week before the Labour government presents its annual budget on 28 October, which is expected to address cost-of-living pressures.
The rise was largely driven by fuel price increases. Average diesel prices in September reached their highest level since July 2022, as the US-Iran war sent petrol and diesel prices soaring.
Transport, particularly motor fuels, made the largest upward contribution to the change in annual inflation, the ONS said. Transport prices rose by 6.6% year-on-year, up from the previous month’s 4.6%.
Annual services inflation accelerated to 3.7%. Housing and household services and communication costs rose by 5.3% and 5.8% year-on-year, respectively. Food inflation was unchanged at 1.3%.
Core CPI inflation increased to 2.8% from 2.6%. Compared with August, consumer prices rose 0.4%, following a 0.5% increase.
“The energy price cap rose slightly in October, with households braced for an even larger hike early next year,” said Danni Hewson, AJ Bell head of financial analysis. He added that expectations are influenced by rising service costs, as well as the significant increase in the price of raw materials that businesses use to produce, on top of the jump in the cost of transporting those goods.
“The knowledge that funding our lives is only going to get harder in the coming months will impact consumer confidence,” Hewson said.
The Bank of England is widely expected to raise interest rates at its next meeting on 5 November, which could be the first such move since 2023. This could follow increases by the European Central Bank and the US Federal Reserve amid renewed inflation pressures.
“Market expectation of a November increase is now nearing 100%, with more than a 50% chance that a second hike will follow before the end of the year,” Hewson said.
The UK central bank’s current benchmark rate is 3.75%, against an inflation target of 2%.
UK borrowing rises as public debt surpasses £3 trillion
In a separate release, the ONS said that public borrowing was nearly £25 billion (€29.8 billion) in September 2026.
UK public sector net borrowing totalled £24.5bn (€29.2bn) in September, £1.8bn (€2.1bn) more than a year earlier, surpassing market expectations.
The higher borrowing comes as “spending, including higher debt interest costs, increased more than government income, partly reflecting the impacts of inflation”, the ONS said.
This comes as a recent global bond sell-off has driven up bond yields, making borrowing more expensive for leading economies including the US, France, Germany and the UK. UK 10-year gilt yields were just below 5.4% at the end of September, having reached a 19-year high earlier that month.
Meanwhile, UK government borrowing between April and September 2026 reached £97.8bn (€116.5bn), slightly below the same period last year and the equivalent of 3.1% of gross domestic product (GDP). The amount was still £6bn (€7.1bn) more than the Office for Budget Responsibility’s forecast.
Public sector net debt at the end of September 2026 was provisionally estimated to have exceeded £3 trillion (€3.57 trillion) for the first time. However, as a proportion of the economy, debt was lower than a year earlier, the ONS said.
Debt stood at 94% of GDP, down from 94.7% a year earlier.