UK inflation climbed to 3.5% in September, exceeding the 3.4% that economists had predicted, as the Office for National Statistics reported a sharp rise from 3.1% in August. The Guardian reported that the surge was driven by a conflict in the Middle East that has pushed fuel prices to record levels. Since the US and Israel's war on Iran began in February, oil and gas prices have soared. The practical closure of the strait of Hormuz to most fossil fuel traffic sent the price of Brent crude well north of $100 a barrel and it is currently hovering at about the $110 mark, according to the source material.
The ONS said that a rise in the cost of petrol and diesel was the single largest factor pushing up inflation in September. The average price of petrol rose by 8.2p a litre between August and September 2026, compared with a fall of 0.2p in the same period last year. Diesel rose by 10.7p a litre in September 2026, compared with a fall of 0.4p a litre in September 2025. Petrol prices have leapt above £1.70, while diesel hit a record high of more than £2 a litre this month before easing slightly back. Air fares, which are heavily affected by the price of fuel, dropped in September by much less than usual after the traditional summer peak.
Some areas provided relief to the chancellor John Healey ahead of his first budget. The cost of clothing fell slightly and food prices growth remained steady at 1.3% as competition among supermarkets offset increases in transport costs. However, bank officials are widely forecast to raise interest rates when they meet next month, with concerns that inflation will jump above 4% next year, more than double the Bank of England's 2% target rate.
Charlotte O'Leary, an economist at the National Institute of Economic and Social Research, said the recent run of three months of rising annual inflation was likely to continue through the winter. She warned that higher fuel and transport costs will likely push up food prices, and January's large price cap increase will land as household energy demand peaks. 'Given this, inflation could reach 4%, double the Bank's target, by early 2027,' she said.
Martin Beck, the chief economist at the consultancy WPA, said the higher than expected inflation rate meant it was almost inevitable that the Bank of England would raise interest rates when they meet on 5 November. However, he cautioned that raising interest rates cannot produce more oil or gas, and further tightening risks weakening an already fragile economy. Healey blamed the inflation rise on the war in the Gulf, saying his budget would 'drive for growth in every postcode' to improve living standards.
For savers, borrowers, business owners and investors in the UK, higher inflation and likely interest rate rises mean increased borrowing costs and pressure on household finances, particularly through January's price cap increase for energy, while gilt yields are already at multidecade highs, limiting the government's room to manoeuvre.