UK inflation rises to 3.5% as fuel costs increase

UK inflation accelerated to 3.5% in September, adding pressure to household budgets and business costs as the government prepares for its autumn Budget. Motor fuels made the largest upward contribution to the change in annual inflation, while underlying services prices also rose more quickly.

The Office for National Statistics said the Consumer Prices Index increased by 3.5% in the 12 months to September 2026, up from 3.1% in August. On a monthly basis, consumer prices increased by 0.4%, whereas they were little changed in September 2025. The broader CPIH measure, which includes owner occupiers’ housing costs, rose by 3.6% annually, compared with 3.3% in August.

Transport was the principal contributor to the rise. Annual transport inflation increased from 4.6% to 6.6%, reflecting the movement in fuel prices. Average petrol reached 169.5p a litre and diesel 192.5p, following increases during September. Those costs are directly relevant to road transport operators and businesses whose vehicles carry staff, goods or equipment between sites.

Higher delivery costs can also reach organisations that do not operate their own fleets. Manufacturers, wholesalers, retailers and construction contractors may see fuel expenditure reflected in supplier quotations, contract reviews or surcharges. The effect is not uniform: businesses with fixed agreements, fuel hedging or less transport-intensive operations have different exposure from those purchasing services at current prices.

Restaurants and hotels provided the largest downward contribution to the change in the annual inflation rate. Their inflation rate eased from 4.1% to 3.8%, while food and non-alcoholic beverages remained at 1.3%. These measures show that the price picture varies across categories rather than rising at the same pace everywhere.

Core CPI, excluding energy, food, alcohol and tobacco, increased from 2.6% to 2.8%. Services inflation rose from 3.4% to 3.7%, while goods inflation advanced from 2.7% to 3.2%. Persistent services prices are relevant to the Bank of England because they can reveal domestic cost pressures beyond a single movement in commodity markets.

A higher annual inflation rate does not mean that every price has increased in September, nor that businesses are experiencing precisely the same increase in their bills. It compares the cost of a measured basket with the equivalent month a year earlier. The level of prices also remains important: a slower inflation rate would still mean prices were increasing, unless the rate turned negative.

For consumer businesses, higher fuel spending can restrict the money available for discretionary purchases. Where customers are already cautious, passing through higher operating expenditure may prove difficult. Business budgets must therefore account for both input costs and the possible effect on volumes, rather than assuming price increases can be recovered without changes in demand.

The data arrive ahead of the Budget on 28 October. Fiscal decisions may influence consumer incomes and the cost of employment or investment, but the inflation bulletin does not establish what measures ministers will announce. Similarly, the Bank of England’s future interest rate decisions will take account of wages, employment, output and inflation expectations as well as this monthly release.

The ONS also recorded increases in core CPIH and services inflation on its broader housing-inclusive measure. Core CPIH rose from 2.9% to 3.1%, while CPIH services inflation increased from 3.6% to 3.9%. The difference between CPI and CPIH reflects the additional housing cost component, which accounts for a substantial share of CPIH. Although both measures pointed upwards in September, their purposes differ: CPI is the measure used for the Bank of England’s inflation target, whereas CPIH offers a wider view of household costs.

Companies preparing budgets for 2027 will be watching whether the September increase continues or moderates. Businesses exposed to energy and transport are particularly sensitive to market developments that can change costs rapidly, while longer service contracts may adjust more gradually. The ONS is due to publish October consumer inflation data on 18 November, providing the next broad indication of the trend.