The UK’s inflation rate is expected to have fallen in September when fresh figures from the Office for National Statistics are released for September on Wednesday next week.
According to FactSet’s consensus, the headline Consumer Price Index rate is forecast to have nudged down last month to 2.1%, from 2.2% in August. This still leaves inflation slightly above the Bank of England’s 2% target.
“Core” inflation, which excludes more volatile food and energy prices, is expected to have fallen to 3.5% in September, down marginally from 3.6% in August.
Is Inflation Falling in The UK?
Both inflation measures have been lower this year: headline CPI hit the BoE’s 2% target in June before nudging up to 2.2% in July and August, while the core inflation rate dropped to 3.3% in June, before also rising again. Policymakers remain concerned about the persistence of core inflation, a measure that excludes more volatile energy, food and alcohol prices.
This is the last inflation print before the Oct. 30 Budget and the Nov. 7 Bank of England meeting, where interest rates are expected to be cut from 5% to 4.75%. If that happens, it would be the BoE’s second rate cut this year after it lowered lowered rates in August.
Rates were held at 5% in the most recent Bank meeting on Sep. 19, where the central bank maintained its cautious messaging about inflation persistence:
“Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further,” it said at the time.
In August the Bank published its quarterly monetary policy report, which has projections for longer-term inflation. In all of the Bank’s 2025 inflation forecasts, CPI remains above the 2% target in a year’s time, before falling below target in 2026. This partly explains the Bank of England’s caution over cutting interest rates too quickly.
War, Sterling and Energy Bills
What has changed in the UK since the last inflation print? Conflict in the Middle East has escalated, but this has—so far—yet to put too much pressure on oil prices, which are actually lower than a year ago. Brent Crude is currently trading at $78.80 a barrel, down 0.8% from 12 months prior.
Meanwhile, the pound strengthened in September, hitting $1.34 towards the end of September before falling back; this time last year the pound was trading at $1.22. Against the euro, the pound reached €1.20, having started the year around €1.15.
In basic terms, a stronger currency tends to make imports cheaper but increases the price of exports. The UK depends on many imports of goods, especially food and energy, and still had a “trade deficit” of nearly £60 billion for goods—importing more than it exports—in Q2 2024. The UK does have a £40 billion trade surplus in services, however.
On Oct. 1, the Ofgem price cap was lifted for domestic energy prices, so that means gas and electricity bills will now rise again. This effect should be noticeable in the October headline inflation data, which is due in the middle of November.
UK inflation peaked above 11% in 2022 and has fallen sharply since. Bank of England interest rates rose from 0.1% in December 2021 to 5.25% in August 2023. Global central banks have been cutting interest rates this year as inflation falls, with the US Federal Reserve, European Central Bank and the Bank of England all making downward adjustments.
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