UK inflation rises to 3.5% as fuel costs surge

UK inflation rose to its highest level in almost a year in September 2026, driven by rising petrol and diesel prices, according to the latest figures from the Office for National Statistics (ONS).

The Consumer Prices Index (CPI) increased by 3.5% in the 12 months to September, up from 3.1% in August and above economists’ expectations of 3.4%.

The latest increase takes annual inflation to its highest level since October 2025 and further above the Bank of England’s 2% target, adding to concerns about persistent price pressures and the outlook for interest rates.

On a monthly basis, CPI rose by 0.4% in September, compared with little change in the same month last year.

Meanwhile, the Consumer Prices Index including owner occupiers’ housing costs (CPIH) increased by 3.6% in the year to September, up from 3.3% in August. Monthly CPIH inflation was 0.4%, compared with 0.1% in September 2025.

Fuel prices drive inflation higher

Transport costs, particularly motor fuels, made the largest upward contribution to inflation during September.

Motor fuel prices increased by 30% in the year to September, compared with a 23% annual rise in August, reflecting continued pressure from higher global energy prices.

ONS Chief Economist Grant Fitzner said: “Inflation climbed notably in September to its highest annual rate in almost a year.

“Increased fuel prices were again the main driver, with the cost of diesel the highest since July 2022.

“Other upward pressures included airfares and, to a lesser extent, computer games and live events, which are often volatile.”

Restaurants and hotels provided the largest downward contribution, partially offsetting the increase in transport costs.

Underlying inflationary pressures also strengthened. Core CPI, which excludes energy, food, alcohol and tobacco, increased to 2.8% in September from 2.6% in August.

Services inflation rose from 3.4% to 3.7%, while goods inflation increased from 2.7% to 3.2%.

Core CPIH also accelerated, rising from 2.9% to 3.1%.

Interest rate outlook under pressure

The stronger-than-expected inflation figures are likely to increase pressure on the Bank of England ahead of its November interest rate decision.

With inflation continuing to move further above the Bank’s 2% target, expectations of an interest rate increase have strengthened, potentially raising borrowing costs for households and businesses.

Higher fuel and energy costs could also place additional pressure on SMEs, particularly those operating in transport, logistics, construction and other energy-intensive sectors.

The latest figures come ahead of Chancellor John Healey’s Autumn Budget next week, with renewed attention on measures to support businesses and households facing higher living and operating costs.

Responding to the figures, Healey said: “We know that price rises from conflicts in the Middle East and Europe are hitting Britain and countries worldwide.”

He added that the Government would maintain its focus on fiscal discipline and economic growth while seeking to give businesses and families additional financial breathing space.

The inflation increase presents a further challenge for policymakers seeking to balance economic growth with price stability, as businesses and consumers continue to face rising costs.