UK Inflation Climbs to 3.5 Percent in September on Middle East Fuel Surges
UK inflation climbed to 3.5 percent in the 12 months to September, driven by surging motor fuel costs stemming from conflicts in the Middle East and Europe. The figure exceeded the 3.4 percent increase forecast by economists polled by Reuters and the Wall Street Journal, marking an increase from August’s 3.1 percent rate and reaching its highest level in almost a year, according to the Office for National Statistics.
The acceleration places mounting pressure on Chancellor John Healey ahead of his first budget on October 28, while reinforcing expectations that the Bank of England will raise interest rates. The ONS reported that average petrol prices rose by 8.2 pence per litre between August and September to reach 169.5 pence, while diesel climbed by 10.7 pence per litre to hit 192.5 pence. Motor fuel inflation overall reached its highest level since August 2022, as the effective closure of the Strait of Hormuz by Iran after US and Israeli attacks disrupted a major global supply line for crude oil.
Chancellor Healey Faces Budget Pressures and Record National Debt
The inflation spike complicates Chancellor John Healey's fiscal planning as he prepares his upcoming budget. Separate data published by the ONS showed that government borrowing reached £25 billion in September, which is £1.8 billion higher than a year earlier, as higher inflation increased debt interest costs. Total national debt also exceeded £3 trillion in September for the first time.
Healey stated that price rises from conflicts in the Middle East and Europe are hitting Britain and countries worldwide. Healey maintained that his upcoming budget would drive growth in every postcode and give families breathing space while adhering to the government’s fiscal rules. However, high gilt yields—representing the interest rate on government debt—limit his room to manoeuvre as borrowing costs restrict fiscal headroom.
Bank of England Rate Hike Expectations Intensify for November
Financial markets are pricing in a 98 percent probability that the Bank of England will raise its key interest rate by 25 basis points to 4 percent next month, according to LSEG data. ONS chief economist Grant Fitzner noted that besides fuel, the upward pressure came from rising prices for airfares, computer games, and live events. Inflation could reach 4 percent by early 2027.