Stable UK CPI Strengthens Disinflation Narrative Ahead of MPC Meeting
- Headline inflation holds at 3.8 y/y for third straight month - Both core and services costs stall in September - Monthly PPI output flat while annual rate edges higher - Gilt yields drop as traders bring forward easing expectations
LONDON - UK inflation stalled last month, offering relief to both Bank of England rate setters and households grappling with persistent cost pressures.
Data from the Office for National Statistics (ONS) showed annual headline CPI holding steady at 3.8%, two-tenths below consensus and unchanged from the previous month. On a monthly basis, CPI was flat, undershooting the 0.1% forecast and the 0.3% rise recorded previously. Core CPI — which excludes energy, food, alcohol and tobacco — slowed a tenth to 3.6%, below expectations of 3.7%.
Grant Fitzner, ONS chief economist, said a mix of price movements contributed to the plateau.“The largest upward drivers came from petrol prices and airfares, where the fall in prices eased in comparison to last year,” he explained.“These were offset by lower prices for a range of recreational and cultural purchases, including live events. The cost of food and non-alcoholic drinks also fell for the first time since May last year.”
Services inflation provided a modest bright spot, with the annual rate stalling at 4.7% in September, a tenth below expectations. Goods inflation, however, ticked up to 2.9% y/y from 2.8% — its highest rate since October 2023.
George Buckley of Nomura said the softer reading reinforces recent signs of economic cooling. “Today’s weaker-than-expected UK inflation print adds to the softer economic data that have been building over the past month (including labour market data and the PMIs). The annual rate of services inflation remains too high, but monthly momentum looks to be slowing towards rates that are target-consistent.”
Factory gate prices
For the first time in seven months, the ONS published producer price data alongside CPI figures, although the statistics remain suspended from official status pending a compliance review by the Office for Statistics Regulation (OSR).
PPI output was flat on the month versus a 0.2% forecast and last. Annually, factory gate prices rose 3.4% y/y, up from 3.1% in August. Input costs fell 0.1% m/m against expectations for a 0.2% rise and increased 0.8% y/y, matching forecasts.
Services producer prices rose 2.1% in the year to Q3, compared with 1.7% in the year to Q2, while quarterly growth accelerated to 0.9% in Q3.
Fitzner noted that higher food costs largely drove the pickup in output prices.
Repricing of rate cut odds
Markets responded swiftly to the softer inflation figures. UK government bonds rallied, with short-dated gilts outperforming as yields fell 10 basis points to 3.76% immediately after the release. Traders moved to price in a Bank of England rate cut before year-end.
JP Morgan’s Allan Monks still sees February as the most likely timing for the first cut, but said the balance could shift if the recent run of weaker data persists. “Taken with the weaker labour market report last week, there is now clearer evidence of underlying disinflation that opens the door more clearly to a December cut,” he said.
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- Headline inflation holds at 3.8 y/y for third straight month
- Both core and services costs stall in September
- Monthly PPI output flat while annual rate edges higher
- Gilt yields drop as traders bring forward easing expectations
By Harry Daniels
LiveSquawk News
@HarryDaniels71
22 October 2025 | 12:00 BST
LONDON - UK inflation stalled last month, offering relief to both Bank of England rate setters and households grappling with persistent cost pressures.
Data from the Office for National Statistics (ONS) showed annual headline CPI holding steady at 3.8%, two-tenths below consensus and unchanged from the previous month. On a monthly basis, CPI was flat, undershooting the 0.1% forecast and the 0.3% rise recorded previously. Core CPI — which excludes energy, food, alcohol and tobacco — slowed a tenth to 3.6%, below expectations of 3.7%.
Grant Fitzner, ONS chief economist, said a mix of price movements contributed to the plateau.“The largest upward drivers came from petrol prices and airfares, where the fall in prices eased in comparison to last year,” he explained.“These were offset by lower prices for a range of recreational and cultural purchases, including live events. The cost of food and non-alcoholic drinks also fell for the first time since May last year.”
Services inflation provided a modest bright spot, with the annual rate stalling at 4.7% in September, a tenth below expectations. Goods inflation, however, ticked up to 2.9% y/y from 2.8% — its highest rate since October 2023.
George Buckley of Nomura said the softer reading reinforces recent signs of economic cooling. “Today’s weaker-than-expected UK inflation print adds to the softer economic data that have been building over the past month (including labour market data and the PMIs). The annual rate of services inflation remains too high, but monthly momentum looks to be slowing towards rates that are target-consistent.”
For the first time in seven months, the ONS published producer price data alongside CPI figures, although the statistics remain suspended from official status pending a compliance review by the Office for Statistics Regulation (OSR).
PPI output was flat on the month versus a 0.2% forecast and last. Annually, factory gate prices rose 3.4% y/y, up from 3.1% in August. Input costs fell 0.1% m/m against expectations for a 0.2% rise and increased 0.8% y/y, matching forecasts.
Services producer prices rose 2.1% in the year to Q3, compared with 1.7% in the year to Q2, while quarterly growth accelerated to 0.9% in Q3.
Fitzner noted that higher food costs largely drove the pickup in output prices.
Markets responded swiftly to the softer inflation figures. UK government bonds rallied, with short-dated gilts outperforming as yields fell 10 basis points to 3.76% immediately after the release. Traders moved to price in a Bank of England rate cut before year-end.
JP Morgan’s Allan Monks still sees February as the most likely timing for the first cut, but said the balance could shift if the recent run of weaker data persists. “Taken with the weaker labour market report last week, there is now clearer evidence of underlying disinflation that opens the door more clearly to a December cut,” he said.