UK inflation rises to 3.5% as fuel costs climb amid Middle East war

UK annual inflation rose to 3.5% in September, the Office for National Statistics said. The rate was 3.1% in August and exceeded the 3.4% forecast, with motor fuel providing the biggest upward pressure.

Petrol prices increased by an average of 8.2 pence a litre during the month, compared with a 0.2p fall in September a year earlier. Diesel rose by 10.7p a litre.

Inflation increases borrowing costs

The government paid £10.9bn in debt interest in September, the highest September total on record. The ONS said higher inflation added about £4bn to the bill.

Government debt was estimated to have reached £3tn for the first time, although debt as a share of the economy fell to 94% from 95% a year earlier. Public sector net borrowing for the financial year so far was £97.8bn, £4.4bn below last year but £6bn above the Office for Budget Responsibility’s forecast.

Rate decision and benefit increases

The inflation figure increases the likelihood that the Bank of England will raise its 3.7% interest rate at its meeting on 5 November. Economists have also warned that inflation could reach 4% by early 2027.

The 3.5% CPI increase will determine higher payments for most working-age benefits from April. Weekly child benefit for a first child will rise by 95p to £28.

Clothing prices edged down and food-price inflation held at 1.3%. Business rates in England are also expected to rise by more than forecast; tax firm Ryan said this could raise more than £1bn for the Treasury.

John Healey blamed the rise on the conflict in the Middle East. Martin Beck, chief economist at WPI, said a November rate increase was almost inevitable but warned that higher borrowing costs could weaken an already fragile economy.