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Financial markets are betting that the next interest rate cut will come sooner than previously thought.<\/p>\n
Another reduction is now fully priced in by February, compared with March before the inflation figures, according to interest rate futures.<\/p>\n
Markets also expect more easing next year than previously, pricing in 64 basis points of Bank of England rate cuts versus 57 bps before the inflation data was released.<\/p>\n
Share<\/a><\/p>\n Updated at\u00a002.40 EDT<\/p>\n Some economists are saying this is probably the peak in inflation. What does this mean for interest rates?<\/p>\n Paul Dales, chief UK economist at Capital Economics<\/a>, said:<\/p>\n CPI inflation was lower than feared in September, as it stayed at 3.8% rather than rising to 4.0% or above. We doubt this will prompt the Bank of England to cut interest rates from 4% in November. But it increases the chances of the next cut happening by February in line with our forecast and it supports our view that interest rates will be reduced to 3% next year.<\/p>\n What\u2019s more, this will probably be the peak in inflation. Our forecast is for CPI inflation to fall to 3.5% or below in October, not least due to the declines in utility and fuel prices that we already know about. Food price inflation may yet rise further, perhaps back above 5.0% by December, but there are\u2026 good reasons to expect it to fall back next year.<\/p>\n And if we\u2019re right in thinking that weak employment will significantly weigh on wage growth next year, then CPI inflation may surprise most people by falling to 2.0% by the end of next year.<\/p>\n Turning to the budget, Dales said:<\/p>\n It\u2019s possible the chancellor will add to that trend in the budget on 26 November, either by reducing inflation directly (cutting VAT on utilities from 5% to 0% would trim CPI inflation by 0.2ppts) or indirectly as higher taxes chip away at economic activity.<\/p>\n Share<\/a><\/p>\n Petrol prices and airfares fell last month, but not as much as a year earlier.<\/p>\n The average price of petrol fell by 0.2p a litre between August and September to an average of 134p a litre in September, but last year prices fell by 5.5p a litre. Diesel prices were down by 0.4p a litre to 141.8p a litre.<\/p>\n Air fares fell by 28.8% between August and September, the third-largest September decrease since the collection of airfares changed from quarterly to monthly in 2001. However, air fares fell by 34.8% a year earlier, which was the largest September drop since 2001.<\/p>\n This meant annual transport inflation rose to 3.8% from 2.4%.<\/p>\n This was offset by lower prices for leisure activities, in particular live music concerts, where monthly prices fell by 8.6% compared with a rise of 5.8% a year earlier. Overall, the annual inflation rate in recreation and culture fell to 2.7% from 3.2%.<\/p>\n Here\u2019s our full story:<\/p>\n Share<\/a><\/p>\n Updated at\u00a002.28 EDT<\/p>\n Introduction: UK inflation stays at 3.8% as food price rises slow for first time since March<\/p>\n Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.<\/p>\n UK inflation was unchanged last month, defying expectations of a rise to 4%, with food price rises finally slowing.<\/p>\n The annual rate of inflation, as measured by the consumer prices index (CPI), was 3.8%, the same as August\u2019s reading<\/a>, according to Office for National Statistics data.<\/p>\n Inflation is still almost double the Bank of England\u2019s 2% target, and has been above it for 12 months in a row.<\/p>\n The core rate of inflation, which strips out volatile food and energy costs, dipped to 3.5% from 3.6% in August.<\/p>\n This is good news for the chancellor, Rachel Reeves. She said last week she would announce \u201ca range of policies\u201d<\/a> in her 26 November budget to \u201cbear down on some of the costs that people face\u201d.<\/p>\n Importantly, food prices dipped by 0.2% in September from August amid discounting at supermarkets, taking the annual growth rate to 4.5%, from 5.1% in August.<\/p>\n It was the first time since May last year that food prices have fallen on the month; and the first time since March this year that the annual rate has slowed.<\/p>\n The Consumer Prices Index (CPI) rose by 3.8% in the 12 months to September 2025, unchanged from August 2025.<\/p>\n The September, August and July 2025 figures were the joint-highest recorded since January 2024, when the rate was 4.0%.<\/p>\n Read the article \u27a1\ufe0f https:\/\/t.co\/MkZBeF7kCc<\/a> pic.twitter.com\/sQ6mUCGB11<\/a><\/p>\n \u2014 Office for National Statistics (ONS) (@ONS) October 22, 2025<\/a><\/p>\n Commenting on today\u2019s inflation figures for September 2025, ONS Chief Economist Grant Fitzner said: (quote 1 of 2) \ud83d\udcac pic.twitter.com\/vE9BMufbUW<\/a><\/p>\n