HighIV Macro Policy & Sovereign Debt21 October 2026, Wednesday · 09:00 TRT (UTC+3)

UK inflation jumps to 3.5%, all but sealing a November hike

According to the ONS, annual CPI rose from 3.1% to 3.5% in September, beating the 3.4% consensus, as motor fuel prices climbed 29.8%. Markets almost fully price the BoE lifting Bank Rate from 3.75% to 4% on 5 November.

Location: LONDON

ONS data published on 21 October showed UK annual CPI rising from 3.1% to 3.5% in September, against market expectations of 3.4%. That is the highest rate since 3.6% in October 2025. Core inflation, which excludes energy, food, alcohol and tobacco, rose from 2.6% to 2.8%. Services inflation climbed from 3.4% to 3.7%.

Fuel drove the jump, with motor fuel prices up 29.8% on the year, compared with 23.0% in August. ONS figures cited by The Independent put average petrol at 169.5p a litre in September and diesel at 192.5p. Heating oil rose 105% year on year. Investing.com estimated that it added about 0.2 points to the headline rate together with motor fuel. Capital Economics expects inflation to peak at about 4.2% next year.

The data landed 15 days before the Monetary Policy Committee's 5 November meeting. Bank Rate stands at 3.75%. At the meeting ending 16 September, the committee held rates by 6 votes to 3, with 3 members seeking a 25 basis point increase. Joe Calnan of iBanFirst said a 25 basis point November hike was almost fully priced even before the release. Public sector borrowing, published the same day, came in at £24.5 billion for September against expectations of £23.9 billion. Chancellor John Healey presents his first budget on 28 October.

Talay assessment

Bottom line

September's data took the 5 November hike off the table as a debate; the real question is whether a second increase follows. Part of the jump to 3.7% in services inflation came from airfares, so there is no proof yet that energy is feeding into wages. With September borrowing at £24.5 billion, the 28 October budget leaves little room for energy support.

Likely effects

MortgagesNegativeWeeks
A rise in Bank Rate from 3.75% to 4% lifts variable-rate and refinancing costs; 2-year fixed mortgage rates are already about 95 basis points above pre-conflict levels.
Public financesNegative1–6 months
Higher rates add to the interest bill on September's above-forecast £24.5 billion of borrowing and shrink the room for energy support in the 28 October budget.
SterlingUncertainWeeks
Rate expectations support sterling, especially against the euro; iBanFirst doubts the budget can give the pound lasting support and sees the risks skewed to the downside.

Possibilities, ranked

1
One hike in November, then a pause55%
The BoE raises rates to 4% on 5 November and waits until February if non-energy prices stay calm.
Watch: Services inflation falling below 3.7% in October CPI and regular pay growth holding at 3.7%
2
Back-to-back hikes30%
Fuel and bill increases turn into second-round effects, inflation nears the 4.2% peak forecast, and a second hike comes before February.
Watch: Energy measures in the 28 October budget and the 2027 forecast in the 5 November Monetary Policy Report
3
Hike is postponed15%
Budget tightening and slowing demand push the committee to hold in November.
Watch: More than 3 members voting for no change on 5 November

Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.

Market reaction

Indicators affected

UK CPI▲ 3.5%
Core CPI▲ 2.8%
Motor fuel inflation▲ 29.8%
September public borrowing▲ £24.5bn

Bottom line

Likely effects

Possibilities, ranked

Sources