UK inflation in focus ahead of today’s session

Limited impact expected on the BOE outlook

The spotlight today falls on the UK CPI report for September, with markets expecting headline annual inflation to edge slightly higher to 4.0% (from 3.8% in August), and core inflation to rise modestly to 3.7% (from 3.6%).

While this suggests that price pressures remain somewhat stubborn, analysts do not expect the data to meaningfully alter the Bank of England’s near-term policy stance. Current market pricing indicates around an 85% probability that the BOE will hold rates steady next month, with only 11 basis points of cuts priced in by year-end.

That said, the details of the report will matter. The anticipated uptick in headline inflation is largely attributed to base effects, particularly from airfare prices, which saw a steep decline in September last year but are not expected to fall as sharply this time. Smaller year-on-year drops in petrol and energy prices are also contributing factors.

Even if the headline figure does return to 4%, analysts widely view this as the likely peak, rather than the start of renewed upward momentum.

For core inflation, modest increases in both goods and services components are expected. The services sector, which remains close to 5%, continues to be the BOE’s main concern, while food inflation, though still around 5%, is showing encouraging signs of stabilization.

Overall, today’s data may reinforce the narrative of sticky but contained inflation — keeping the BOE on hold for now as policymakers assess how quickly underlying price pressures ease heading into Q4.