22 October 2025
If you are covering this morning's inflation figure, please see the following comment from Lindsay James, investment strategist at Quilter:
“UK inflation remained at 3.8% for the third month in a row in September, slightly better than expected. Overall, this is an encouraging sign and could mark the peak.
“Food prices came in at 4.5%, having reached 5.1% in August. While this is better than expected, discounting seems to be the most significant reason, with higher food costs likely to continue in the long term as a result of climate impacts. Recent research has shown that butter, milk, beef, chocolate and coffee have been the main drivers of recent food inflation. This is directly linked to the poor harvests resulting from extreme weather patterns and, while it may revert periodically, looking ahead food prices seem likely to be structurally higher and an ongoing challenge.
"However, transport costs climbed from 2.4% to 3.8%, adding pressure to overall inflation.
“Wage inflation also remains an indirect driver of higher prices generally. It currently sits at nearly 5%, due to a mix of factors including public sector pay rises, a lack of labour mobility, skills gaps and demographic factors. However, despite some of these elements being structural, 2026 is unlikely to see pay rises of this magnitude. Public sector pay agreements have been largely reset, and a still-slow economy is likely to hold back the private sector, which is beginning to turn to AI to fill entry level roles in some areas.
“Other policies that have pushed up costs for businesses are ultimately passed on to consumers. This was the case for the added NI on employers. While it may not have been a direct tax on working people, there is no doubt it has still hit people’s pockets. While there is some optimism that as we reach the one year milestone since the changes to employer NI were first introduced some pressures on inflation will ease, it’s possible that others will be introduced at the November budget.
“The Chancellor must avoid adding further inflationary pressure at the upcoming budget given today's more positive figures. The current state of public finances was revealed yesterday and underlined the ongoing issue of inflation; it has increased the welfare and pensions bill and pushed up the cost of index linked debt, but it didn’t translate into commensurately higher income tax receipts.
“Currently, the market is expecting the Bank of England to make just two quarter point rate cuts next year as inflation is expected to fall slowly. If inflation falls more decisively then there may be scope for more.”
