New inflation rate relief for Reeves ahead of budget: live

Thomas Pugh, chief economist at tax firm RSM UK, says the good news of no increase in inflation could be a double boost for Rachel Reeves.

While no increase in new costs is a relief rather than a victory, if it prompts the BOE to make another interest rate cut before the end of the year it will be seen as a step in the right direction.

“The surprising stability of inflation in September, holding at 3.8% rather than reaching 4% as was widely expected, is a rare good news for the Chancellor ahead of a difficult Budget,” Mr Pugh said.

“Admittedly, inflation will probably ease only gradually from here, so we doubt this will be enough to prompt the Bank of England to cut interest rates next month. But it does make a December rate cut on the cards, especially as the Chancellor has learned from last year’s Budget and is determined to avoid another budget-induced inflation surge in April. This would mean inflation falling below 3% since the spring. Needed.

“We still have February as the next opportunity for the Bank of England to cut interest rates, but we think the combination of the decline in food price inflation, the fall in oil prices and a much lower inflation budget than we had thought would lead to a rate cut in December. This would be rare positive news for the Chancellor, coming so soon after his recent comments about wanting to see further reductions in interest rates.”

The British Chambers of Commerce (BCC) says that Britain is at the forefront among the G7 countries and businesses are still feeling the pressure.

David Bharier, head of research at the BCC, said: “Sticky inflation risks becoming a uniquely British disease as the UK remains isolated from the rest of the G7.

“Today’s CPI rate of 3.8%, which is lower than expected, may provide some reassurance that we are past the peak, as the BCC and the Bank of England had expected. However, the picture is mixed. Core inflation has slowed, but re-introduced producer price data shows factory gate prices rising 3.4%, indicating that cost pressures remain in the pipeline, particularly for food and manufacturing.”

The organization stressed the need to reduce energy bills and said the upcoming budget is “crucial”.

The chart below is useful to scan the past few years and see how different sectors in the UK have affected inflation.

For example, on the far left, on the far right of the graph, the purple and pink sections show ‘Restaurants and Hotels’ and ‘Entertainment and Culture’ contributing much more to inflation than they do now.

But the dark green – ‘housing and household services’ – has been a big contributor to inflation over the past year and more.

The amount raised between April and September this year has increased by 2.3 percent and is going to be a record Government,

The increase in treasury coffers is partly due to frozen limits that have been in place for years, meaning more and more people are being pulled into the bracket where Tax Payment is required.

How do families and individuals cope with ongoing high cost pressures?

BestInvest’s personal finance expert Alice Hahn urges caution when spending in times of uncertainty.

The rules around income tax may still change and the thresholds may remain constant – making sure you’re not moving money out unnecessarily is a big part of tightening the regime.

She explains, “One of the best ways to avoid the effects of high inflation is to control spending. Lifestyle degradation occurs when people loosen their budgets as salaries rise and start spending on goods and services they once considered luxuries.”

“To avoid wasting money unnecessarily, keep your budget the same when there is a salary increase and use any surplus income to build financial reserves, ensuring that money is saved and invested tax-efficiently to reduce the overall tax burden.

“For those who don’t have access to inflation-beating pay increases, it’s always wise to rein in spending in uncertain times. Canceling unused subscriptions, cutting back on non-essential spending, especially on big-ticket items, transferring expensive debts to a 0% balance transfer credit card and building up emergency savings to cover at least three to six months of essential expenses to build financial flexibility. “Can help.”

Here’s an explanation of why there is a fear that inflation is “freezing” – a phrase you’ll probably hear more than once today.

Because September inflation data is used to extrapolate later costs like the benefits above, it means we already know there will be an inflationary response by next spring.

And that raises concerns that we are moving into a realm where high inflation is becoming persistent – ​​or “rooted” in our economy.

Suren Thiru, economics director at the Institute of Chartered Accountants for England and Wales (ICAEW), said:

“While these figures do little to suggest easing of financial pressure on households and businesses, this unexpectedly restrained reading suggests inflation has now peaked as lower food costs helped keep the headline rate unchanged.

“There is likely to be a slight slowdown this month following the September results, with headline inflation likely to ease modestly as pressure from a small increase in October energy bills compared to a year ago eases.

“While it is possible that inflation has peaked, there is a real risk that these still higher price pressures will become stronger as the September figures are used to measure a number of key costs, including benefit payments and firms’ business rates bills.

“Despite softer than expected inflation, prospects for a rate cut in November remain hanging, especially as rate-setters will want to analyze the inflationary impact of any measures announced in the Budget before easing policy again.”

With inflation stagnant and no longer rising, the question turns to interest rates and whether the Bank of England’s MPC might now vote for lower rates, especially around the budget.

But this should not be on the agenda, says George Brown, senior economist at Schroders.

Indeed, he believes the market is still predicting an interest rate cut that could be completely wrong – and the Bank of England could go in the other direction instead.

“Inflation near 4 percent should serve as a warning to markets that two more rate cuts next year will continue. There is a strong risk of high inflation in the UK due to the combination of disappointing productivity and sticky wage growth. We expect the Bank of England to keep interest rates on hold until the end of 2026 and we would not rule out its next rate rise.

“Public borrowing data shows that the Treasury is experiencing the fiscal fallout of this high inflation – through increased government spending – without being equally compensated by higher revenues. Rather than restoring £10 billion of fiscal headroom through a net tightening of around £25 billion, the Chancellor should consider moving to a larger buffer if growth and spending diverge again from the OBR. ahead of making The risk of needing to correct course will be reduced. Forecast.”

Nick Saunders, CEO of Webull UK, suggested the political discussion could move the market.

“Just escaping the psychological barrier of 4% is a release from the pressure for the Chancellor. Not good news, but an escape. Chanel prices in France are rising quite slowly with inflation at 1.1%, undermining the claim that this is entirely a global phenomenon. With the story losing credibility around inflationary pressures around the world, concerns about backsliding could put off investors, which might actually be good news. There is no market.”

Another factor contributing to the September inflation figure is state pensions.

However, in this case, inflation is below wage growth, one of the three parts of the lock – the other being 2.5 percent. Whichever is the highest, the state pension increases by that much.

Thus, next year it will increase by 4.8 percent in line with this year’s salary increase.

“An important consideration going forward is that the increase in the state pension will mean that people receiving the full amount will be just £22 less than the personal allowance threshold for income tax from April next year,” says Sarah Pennells, consumer finance expert at Royal London.

“It will therefore almost certainly rise above this in future years, meaning that many pensioners already tightening their wallets will be hit once again unless the allowance is expanded or an exception is made.”

September’s inflation data is important for more than just the cost of goods and services.

This is also the month the government uses to decide how much benefits will change next April.

Thus, benefits such as jobseeker’s allowance, disability benefit and carer’s allowance can all now be expected to rise by 3.8 per cent next year. On top of that, potential upgrades may also be applied in some cases.

So, food. This is a big deal as grocery prices have been rising recently, seemingly forever.

But hopefully this has now peaked – although discounts rather than general cheap prices may have contributed to this.

For food and non-alcohol beverages, the 12-month change was 4.5 percent in September 2025, down from 5.1 percent in August.

So still growing compared to a year ago, but not as fast as now.

However, month-on-month prices declined by 0.2 percent – ​​the first time this has happened since May 2024.

The ONS lists below as offering small changes to contribute to that figure:

• vegetables
• Milk, cheese and eggs (especially cottage cheese)
• bread and cereals
• fish
• Mineral water, soft drinks and juices