Image: @HarryDaniels71

- Energy costs drive headline inflation higher
- Pipeline price pressures intensify
- Labour market offers some reassurance
- BoE faces growing pressure to act

By Harry Daniels
LiveSquawk News
@HarryDaniels71

12:00 GMT | 21 October 2026

LONDON – UK inflation accelerated further in September, with rising energy costs driving headline prices higher, while a pick-up in underlying inflation added to concerns facing Bank of England policymakers.

Data from the Office for National Statistics showed headline CPI rose 3.5% in the 12 months to September, a tenth of a percentage point above expectations and up from 3.1% in August. On the month, consumer prices increased 0.4%, also a tenth above forecast, but slower than August’s 0.5% rise.

ONS chief economist Grant Fitzner said inflation had climbed to its highest annual rate in almost a year, with higher fuel prices again the main driver and diesel costs reaching their highest level since July 2022.

Other upward pressures came from airfares and, to a lesser extent, computer games and live events, which are often volatile. These were partially offset by hotel prices, which rose by less than in the same period last year.

Core CPI, which excludes food and energy, increased 2.8% y/y in September, matching expectations but accelerating from 2.6% in August.

The annual inflation rate for goods rose to 3.2% from 2.7%, while services inflation increased to 3.7% from 3.4%.

Ruth Gregory, deputy chief UK economist at Capital Economics, noted tentative signs that higher energy prices were beginning to feed through to non-energy inflation.

“Taken together with a likely 13% rise in utility prices in January, we expect these energy cost pass-through effects to lift CPI inflation to a peak of about 4.2% next year,” she said.

There were some encouraging signs from food and non-alcoholic beverages, with annual inflation unchanged at 1.3% in September. The ONS said the rate was last lower in September 2021, when it stood at 0.8%.

Source: Consumer price inflation from the Office for National Statistics

Alongside the rise in consumer prices, statisticians reported a further acceleration in pipeline inflation.

Producer input prices rose 8.3% y/y in September, exceeding the 7.6% forecast and accelerating from August’s upwardly revised 6.7%. On the month, input prices increased 1.5%, above expectations of 1.4% and the revised 0.5% rise in August.

Output prices increased 0.8% m/m and 4.6% y/y, compared with 0.7% m/m and 3.8% y/y in August.

The ONS said crude oil made the largest contribution to the increase in annual input price inflation, with prices rising 14.0% on the month. Refined petroleum products were the largest contributor to annual output price inflation, recording a monthly increase of 9.1%.

Meanwhile, services producer prices rose 4.5% y/y in Q3, the strongest increase since Q2 2023.

Tuesday’s UK employment figures offered a relatively benign picture of labour market conditions, with vacancies recording their largest decline since the start of the year.

The ONS said the fall was concentrated mainly among smaller businesses, which continued to cite higher labour costs as a key factor.

Regular wage growth remained relatively stable, while total pay growth, including bonuses, eased to its lowest rate in nearly six years.

Capital Economics’ Gregory warned that the indirect effects of higher energy prices could continue to build, with the pass-through to broader inflation typically taking up to a year.

“All this leaves us comfortable with our view that the Bank of England will raise rates by 25 basis points in November to guard against second-round effects,” she said.

ING economist James Smith offered a more cautious assessment, arguing that even if annual inflation reaches 4% this year, there is little evidence so far that the energy shock is spreading to other parts of the inflation basket.

“Nor is there much evidence that it will do so over the next few months,” he noted.

“The truth is it’s still early days, and officials will want another few months of data before concluding that the storm has passed.”

Smith expects rate hikes in both November and February, but believes that by the spring, the BoE will be more confident in declaring the risk of second-round effects has passed.