UK inflation has remained at 3.8% for the 12 months to September 2025 – despite expectations that it would rise – raising hopes for an interest cut before the end of the year.
The Consumer Prices Index (CPI) figure for September matches what was recorded by the Office for National Statistics (ONS) for July and August this year. It had been widely expected to grow to 4%, but the ONS said a fall in food prices and a slowdown in recreational spending had offset higher transport costs. This was the first easing of annual food price inflation in six months, which fell from 5.1% to 4.5%, driven by a 0.2% fall in food prices since August. It was supported by the slowing price rises in the "recreation and culture" sector, which includes theatre, cinema and live music tickets.
This reading marks the 12th consecutive month in which the CPI has topped the government's 2% target, but it has still raised hopes that there could be an interest rate cut sooner than had been expected. Some economists now believe that inflation will follow a downward trajectory in the coming months, creating conditions for lower interest rates.
Suren Thiru, economics director at the Institute of Chartered Accountants, said the "unexpectedly restrained reading suggests that inflation has now peaked".
Will there now be an interest rate cut this year?
The Bank of England’s monetary policy committee (MPC) will meet in November and December this year to decide on any changes to the base rate. Most predictions had been that there would be no change to the rate in an effort to counter rising inflation, but with inflation remaining at 3.8% and, crucially, food price inflation falling, that could change.
The market is still anticipating that the next quarter-point interest rate cut will most likely be next year, but in February 2026 rather than March 2026, which had been the consensus before this announcement. However, some do expect it to come sooner, with the swaps market estimating that there is a 35% chance of a rate cut at the 6th November MPC meeting and a 70% chance of a base rate cut at the 18th December meeting. Before the announcement, these odds sat at 14% and 40% respectively.
Despite this optimism from some quarters, inflation does still remain high. While food inflation, a particular focus for the MPC recently, has fallen, service inflation has not. Even with food inflation at this reduced level, food prices are still going up at rate that will worry shoppers.
Adam Deasy, an economist at PwC, said inflation "still sits at nearly double the Bank of England’s 2% target, and the UK remains an outlier among major economies; the next highest in the G7 is the US at 2.9%."
If you're interested in finding out more about where interest rates might go in the future, check out our article on the latest UK interest rate predictions.
What caused inflation to hold at 3.8%?
The key to inflation holding at 3.8% has been put down to food prices. Annual food inflation was 4.5% in the year to September 2025, down from 5.1% in the year to August. This was driven by the first month-on-month fall in food prices since May 2024, as the food element of the CPI was 0.2% cheaper than in August. The cost of vegetables, bread and cheese were key to bringing prices down.
A lesser, but still important, contributor was the "recreation and culture" sector. Annual inflation was 2.7%, down from the 3.2% recorded last month. Live music costs were crucial to this drop, down 8.6% compared to last month, while last year they rose by 5.8% from August to September.
The reason inflation has not fallen is because of higher transportation costs, which were up 3.8% year on year, higher than the 2.4% figure recorded for August 2025. This was mostly down to higher fuel prices and air travel costs, as well as vehicle repair and maintenance costs.
Dr Kris Hamer, director of insight at the British Retail Consortium, said: "With the cost of the weekly shop still significantly higher than last year ... today’s figures are unlikely to raise consumer spirits. Nonetheless, consumers will have been happy to see the price of key staples such as rice, bread and cereal fall on the month."
How will the inflation figures affect mortgages?
The current high level of inflation makes a cut in the Bank of England's base rate unlikely in November, though the odds for a December cut have shortened.
Based on a loan-to-value ratio of 60%, the lowest two-year fixed-rate mortgage deal on the market currently comes in at 3.82% and the best five-year fixed-rate mortgages offer rates from 3.98%. Those looking for a two-year tracker deal can find rates as low as 4.11%, while the best five-year tracker deal is 4.60%. The top deals can be found in our regularly updated article, 'The best mortgage rates in the UK'.
If you are unsure about the best type of mortgage for you, read our article 'Remortgaging in 2025', where Damien examines whether now's the right time to fix your mortgage.
What does inflation mean for savers?
Inflation remains at 3.8%, but it is still above the government target, which is bad news for savers. It is easy to assume that high inflation brings about high interest rates and better returns for savers, but that does not always work out in practice. While it is true that inflation remaining above the 2% target means that the base rate of interest could be maintained higher for longer, high inflation is still bad news for your savings.
Firstly, banks often take much longer to pass on rate rises to savers than they do borrowers. This means it can take a long time for high inflation figures to translate to a boost in your savings rate. Secondly, inflation erodes the value of cash, so your money in the bank will buy you less as the cost of living goes up.
Slowing inflation is good news for savers, as what you have put away should hold its value for longer. You can find the best savings accounts in our article ‘Best savings accounts in the UK’.
What to do if you are struggling to pay your bills
Many essential household costs are still on the rise. Food bills remain higher than this time last year, energy costs are increasing and many household incomes are not keeping pace with the cost of living. However, there is help available if you are struggling.
If you think you might fall behind on your household bills, the best thing to do is to reach out to the relevant supplier in the first instance. If you explain your situation, there will typically be steps they can take to help you come up with a payment plan that works for both parties.
It's also a good idea to make sure you're claiming all the support you might be entitled to. You can check your eligibility for various benefits through the website entitledto.
We also have several articles that may be more specific to your situation and could offer further help:
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