UK inflation held at 3.8% in September, offering some comfort to the Bank of England as it considers the timing of further interest rate cuts. The Office for National Statistics reported that the reading matched August and came in below the 4% pace expected by a Reuters poll of economists.
Lower prices for food and non-alcoholic drinks and softer leisure costs such as live music helped keep inflation steady. Services inflation, a key gauge of underlying pressure watched by rate setters, also held at 4.7%, under the 5% the Bank had forecast.
The figures arrive as the Monetary Policy Committee aims to steer inflation back to its 2% target while supporting a weak economy. Output grew by 0.3% in the three months to August, flat on the second quarter and slower than the 0.7% pace seen in the first quarter.
Markets trimmed sterling’s gains after the release, with the pound down 0.2% against the dollar at $1.335.
Chancellor Rachel Reeves said she was “not satisfied” with the numbers and signalled that November’s Budget will include measures to ease inflation and create room for further rate cuts. “For too long, our economy has felt stuck, with people putting in more and getting less out,” she said.
Taken together, the data suggests that inflation is cooling. This will keep the Bank cautious, even as pressure builds to support growth.
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