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Press Release
21 October 2025
Labour Market
30 October 2025
Society and Culture
Responding to inflation data, Julian Jessop, Economics Fellow at the Institute of Economic Affairs said:
“The September inflation data were not as bad as feared, but still bad. Prices are continuing to rise at a rapid pace from what are already high levels.
“The headline CPI measure held at 3.8%, which was at least below the 4.0% plus expected by the Bank of England and the markets. But it was still well above the Bank’s 2% target and the average of 2.2% in the euro area.
“Inflation should now start to fall in October and return to the 2% target next year. In turn, this should allow the Bank of England to cut interest rates again. Markets think we may have to wait until February, but next month is still in play.
“There will be a small sigh of relief from the Treasury too, especially as the September CPI will be used to uprate working-age benefits next April. However, 3.8% is still much higher than the OBR forecast in March, so the expected benefit uprating will still add to the budget shortfall.
“The levelling out of inflation suggests that the bulk of the business cost increases in Rachel Reeves’ first Budget has now been passed through. However, it can also be explained by the weakening in demand as private sector activity stalls ahead of the next Budget in November.
“From a monetarist perspective, broad money growth has been running at around 4% for some time now, which is not fast enough to sustain inflation much above 3% for long.
“In the meantime, the Chancellor has said she will try to use the November Budget to lower inflation, notably by cutting the levies on energy bills.
“But many other government policies will still add to business costs, including new packaging taxes and the additional red tape in the Employment Rights Bill.”
“The September inflation data were not as bad as feared, but still bad. Prices are continuing to rise at a rapid pace from what are already high levels.
“The headline CPI measure held at 3.8%, which was at least below the 4.0% plus expected by the Bank of England and the markets. But it was still well above the Bank’s 2% target and the average of 2.2% in the euro area.
“Inflation should now start to fall in October and return to the 2% target next year. In turn, this should allow the Bank of England to cut interest rates again. Markets think we may have to wait until February, but next month is still in play.
“There will be a small sigh of relief from the Treasury too, especially as the September CPI will be used to uprate working-age benefits next April. However, 3.8% is still much higher than the OBR forecast in March, so the expected benefit uprating will still add to the budget shortfall.
“The levelling out of inflation suggests that the bulk of the business cost increases in Rachel Reeves’ first Budget has now been passed through. However, it can also be explained by the weakening in demand as private sector activity stalls ahead of the next Budget in November.
“From a monetarist perspective, broad money growth has been running at around 4% for some time now, which is not fast enough to sustain inflation much above 3% for long.
“In the meantime, the Chancellor has said she will try to use the November Budget to lower inflation, notably by cutting the levies on energy bills.
“But many other government policies will still add to business costs, including new packaging taxes and the additional red tape in the Employment Rights Bill.”
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