UK inflation rises to 3.5% as petrol and diesel costs climb

UK inflation rose to 3.5% in September, up from 3.1% in August, as sharply higher petrol and diesel prices added to pressure on household budgets ahead of the Autumn Budget.

The Consumer Prices Index (CPI) recorded its third successive increase in the annual inflation rate. The figure was slightly above economists’ expectations and remained above the Bank of England’s 2% target.

Fuel was the biggest driver, while airfares, computer games and live events also contributed, according to Office for National Statistics chief economist Grant Fitzner. The figures come before the Budget on 28 October and the Bank’s next interest rate decision in November.

Why prices are rising faster

Inflation measures how quickly prices increase over time. September’s 3.5% reading means the overall cost of the goods and services measured by CPI was higher than a year earlier; the rise from August means that annual increase accelerated.

Average petrol prices increased by 8.2p a litre between August and September, compared with a 0.2p fall over the same period in 2025, according to the ONS figures reported by Better Retailing. Diesel rose by 10.7p a litre, against a 0.4p decline a year earlier.

Average diesel prices reached 192.5p a litre, their highest level since July 2022. Those contrasting monthly movements helped push up the annual inflation rate.

The broader CPIH measure, which includes owner-occupiers’ housing costs, increased from 3.3% to 3.6%. Food and drink inflation, however, remained steady at 1.3%.

Price pressures also extended beyond household purchases. Fitzner said the annual costs of raw materials and goods leaving factories continued to rise, driven respectively by higher crude oil and petrol prices.

Interest rates remain under scrutiny

The latest figures put renewed attention on the Bank of England, whose benchmark interest rate stands at 3.75%. Core inflation and services inflation both increased in September, suggesting that the pressure was not confined to international energy costs.

In a speech in Warsaw on 24 September, Bank deputy governor Clare Lombardelli warned that persistently high energy prices could spread more widely into wages and domestic prices. She said monetary policy was increasingly likely to need tightening if elevated energy costs persisted without clear evidence of disinflation or weaker economic activity.

That was a conditional warning, not an announcement of a rate rise. Lombardelli also stressed that policy should not respond mechanically to changes in energy prices.

What the figures mean for households and businesses

September’s inflation reading serves as a benchmark for benefit increases the following April. The state pension follows a separate triple-lock calculation, comparing inflation, earnings growth and 2.5%.

The BBC reported that earnings growth of 3.9% was the highest of those three measures, with the government expected to confirm that percentage as April’s state pension increase. That remained an expected decision rather than a confirmed announcement.

Retailers are also watching September’s figure because it is used to calculate the following April’s business rates uplift. British Retail Consortium lead economist Harvir Dhillon warned that retailers could face around £250 million in additional bills in April 2027 unless the government intervenes.

The Association of Convenience Stores has called for the threshold for full Small Business Rates Relief to rise to £18,000 in rateable value. That is a request ahead of the Budget, not an enacted change.

For households, the immediate pressure is higher transport costs. For businesses, the next key developments are the Budget’s decisions on operating costs and the Bank of England’s November assessment of whether inflation requires a policy response.