UK Inflation Rises to 3.5% — What It Means for Interest Rates, Savings and Bills
A third straight rise in the annual rate. Petrol and diesel at their highest since 2022. And this time, the underlying measures moved up as well. Here's what the September figures show, and what they do and don't tell us about interest rates, savings and bills.
The headline number, and the measures alongside it
CPI rose to 3.5% in the year to September, up from 3.1% in August. Prices rose 0.4% on the month. CPIH, the ONS's broader measure that includes owner occupiers' housing costs, rose to 3.6% from 3.3%, with owner occupiers' housing costs up 4.0% on a year earlier.
Part of the jump is arithmetic. The annual rate compares this September with last September, and the ONS notes that prices changed little between August and September 2025. A 0.4% rise this year against roughly nothing then mechanically lifts the 12-month rate.
What drove it — fuel again
Transport made the largest upward contribution to the change in the annual rate. Transport prices were 6.6% higher than a year earlier, up from 4.6% in August, and motor fuels alone were 29.8% higher, up from 23.0%.
In pence: average petrol rose 8.2p a litre to 169.5p, the highest since August 2022, and diesel rose 10.7p to 192.5p, the highest since July 2022. Heating-oil (kerosene) prices also pushed the rate up, rising 22.7% where the ONS compares that with a fall of 1.4% a year earlier. Pulling the other way, the main downward contribution came from hotels, where prices rose by less than they did a year earlier.
The cause is the same one the Bank of England has pointed to all year. In its 17 September letter to the Chancellor, the Governor said the conflict in the Middle East that began at the end of February has restricted transport through the Strait of Hormuz and pushed up the level and volatility of global energy prices, with petrol rising from around 130p a litre in February to around 170p by mid-September. (Sources: ONS, September 2026; Bank of England, 17 September 2026.)
What changed since August — underlying inflation moved up too
When August's figures came out, the reassuring detail was that the underlying measures hadn't moved. That's no longer true. Core CPI, which strips out energy, food, alcohol and tobacco, rose to 2.8% from 2.6%. Services inflation, which the Bank watches closely as a gauge of domestic price pressure, rose to 3.7% from 3.4%. Goods inflation rose to 3.2% from 2.7%, the highest since September 2023. Food inflation was unchanged at 1.3%.
Some of the services move looks like a comparison effect rather than fresh price rises: services prices were flat on the month (0.0%), so the higher annual rate reflects what happened a year earlier. The ONS points to air fares, which fell by less between August and September this year (19.5%) than a year earlier (28.8%).
Core CPI remains below the headline rate, while services inflation, at 3.7%, has moved slightly above it. Both measures rose in September, and it is the persistence of these domestic price pressures that the Bank watches most closely. The Bank's own assessment, published the day after August's data, was that indirect effects of higher energy costs on other prices had so far been limited but were likely to build over the coming months, adding around 0.6 percentage points to CPI by early 2027, and that there was little evidence so far of large second-round effects on wages. Private-sector regular pay growth was 2.9% in the three months to July. (Source: Bank of England, 17 September 2026. That assessment pre-dates today's figures.)
September 2026 at a glance
| Measure (12-month rate) | August | September |
|---|---|---|
| CPI (headline) | 3.1% | 3.5% |
| CPIH | 3.3% | 3.6% |
| Core CPI (excl. energy, food, alcohol, tobacco) | 2.6% | 2.8% |
| Services CPI | 3.4% | 3.7% |
| Goods CPI | 2.7% | 3.2% |
| Transport (annual rate) | 4.6% | 6.6% |
| Motor fuels (annual rate) | 23.0% | 29.8% |
| Food and non-alcoholic drinks | 1.3% | 1.3% (unchanged) |
Source: ONS Consumer Price Inflation bulletins, August and September 2026.
What it means for interest rates
This data doesn't change Bank Rate by itself. The Monetary Policy Committee next decides on 5 November. At its September meeting it held Bank Rate at 3.75% by six votes to three, with Megan Greene, Catherine Mann and Huw Pill voting for a rise, and said it stood ready to act as necessary to bring inflation back to 2% in the medium term. The full September decision breakdown explains the reasoning.
For context, Bank staff's assessment on 17 September, based on energy futures prices at 14 September, was that CPI inflation would rise to around 3¾% in the fourth quarter of 2026 and slightly above 4% in early 2027. September's 3.5% sits below that path. The next ONS inflation figure, for October, is due on 18 November, after the 5 November decision, so the Committee will have September's figure but not October's. How it will vote can't be known in advance.
What it means for your money
Savings. With CPI at 3.5%, an account paying less than that is losing purchasing power before tax. Among the accounts in the Savings Finder (rates checked on 29 October 2026): the best 1-year fixed bond pays 5.15% (Afin Bank: no withdrawals during the term, and a £200,000 cap across its deposit accounts); the best 5-year bond pays 5.37% (GB Bank, fixed for five years); and the top easy-access rate is 5.00% (LemFi), made up of a 3.04% base rate plus a 1.96% bonus for the first six months only, after which it reverts to about 3.04%, below current inflation. Fixed rates are locked in while inflation can move. Interest above your Personal Savings Allowance is taxable, and a Cash ISA shelters it; see the Cash ISA guide. These comparisons use the latest annual inflation rate as a snapshot, not a forecast of inflation over an account's term. Your actual return after inflation will depend on future price changes, tax and the account's conditions.
Mortgages. Bank Rate hasn't changed, so if your mortgage tracks it there is no Bank Rate-driven change to your payment, subject to your lender's terms. New fixed-rate pricing follows swap rates, which respond to expectations about inflation and Bank Rate rather than a single release.
Energy bills. Ofgem has confirmed the price cap for 1 October to 31 December 2026 at £1,723 a year for a typical household paying by Direct Debit, 4% above the £1,663 for July to September. That is an annualised figure based on typical use (2,500 kWh of electricity and 9,500 kWh of gas), not a maximum bill: the cap limits unit rates and standing charges, so what you pay depends on how much energy you use. The Bank of England's September estimate of a 4% rise in the fourth quarter matched the cap Ofgem then set. Its estimate of a further 24% rise in the first quarter of 2027 remains a forecast, conditional on energy futures prices at the time; it is the Bank's modelling, not an Ofgem announcement, and Ofgem's next cap is due to be announced in November. Separately, the government removed VAT from qualifying household electricity in Great Britain from 1 October 2026, and Budget 2026 announced an extension of that relief to 30 June 2027; HMRC's guidance says Northern Ireland remains at the 5% reduced rate, and VAT on gas is unchanged at 5%. The Budget 2026 guide has the detail. (Sources: Ofgem, 26 August 2026; HMRC, Revenue and Customs Brief 10 (2026); Bank of England, 17 September 2026.)
State Pension. The triple lock raises the State Pension by the highest of three measures: September CPI, average earnings growth, or 2.5%. Budget 2026 confirmed a 3.9% rise in the full new State Pension from April 2027. That uplift is driven by earnings growth, which was higher than the 3.5% September CPI reading, not by inflation.
Frequently asked questions
Sources: ONS, Consumer price inflation, UK: September 2026 (21 October 2026); HM Treasury and Bank of England, open letters, September 2026; Bank of England, Bank Rate. Ofgem, Energy price cap update from 1 October 2026 (26 August 2026); HMRC, Revenue and Customs Brief 10 (2026): temporary zero rate of VAT for domestic electricity in Great Britain. Savings rates from the BritSavvy Savings Finder, checked 29 October 2026; they are provider-published and can change.
This article provides general information, not personalised financial advice. Figures and rates can change.
Correction, 29 October 2026: an earlier version said core and services inflation were both well below the headline rate. Services CPI (3.7%) is above the 3.5% headline, and the text has been corrected. The energy, VAT and State Pension sections were also expanded.