Higher petrol and diesel costs drive Britain's September inflation

£4bn added to debt-interest costs; financial-year-to-date public-sector net borrowing £6bn above OBR forecast

The Office for National Statistics said higher motor-fuel costs were the largest factor pushing up annual inflation in Britain in September, when consumer prices rose 3.5%. The annual rate increased from 3.1% in August and exceeded the 3.4% City forecast for the consumer prices index. The ONS said the average petrol price rose by 8.2 pence a litre from August, compared with a fall of 0.2 pence in the same period a year earlier. Diesel, which is often refined in the Middle East, rose by 10.7 pence a litre, against a fall of 0.4 pence in September 2025.

The ONS said air fares, which are heavily affected by fuel prices, dropped in September by much less than usual after the traditional summer peak. Clothing costs fell slightly, while food-price growth remained steady at 1.3% as competition among supermarkets offset increases in transport costs.

The Guardian reported that oil and gas prices had soared since the end of February, when the US and Israel launched their war on Iran, throttling the flow of fuel through the Strait of Hormuz. The report also said rising inflation had contributed to higher government borrowing costs.

The ONS said inflation had added £4bn to debt-interest costs in September alone because payments on some government bonds rise in line with inflation. The government paid £10.9bn in debt interest that month, the highest September total since records began and only the eighth time the monthly figure had exceeded £10bn.

Public-sector net borrowing in the financial year to date stood at £97.8bn, the ONS said. The total was £4.4bn lower than a year earlier but £6bn above the independent Office for Budget Responsibility’s forecast. The September public-sector deficit was £24.5bn, worse than forecast.

Total government debt was estimated to have hit £3tn for the first time, although its share of the size of the economy fell to 94% from 95% a year ago. The Guardian described rising inflation’s contribution to higher government borrowing costs as the key factor behind the deterioration in public finances since the March spring statement. The Guardian also said the paired releases highlighted a renewed cost-of-living squeeze for consumers and increased financial pressure on Healey. The releases came before Healey’s budget the following week.

September’s 3.5% reading committed Healey to raising most working-age welfare benefit payments from next April by more than expected. The ONS said the 3.5% inflation reading would raise weekly child benefit by 95 pence, to £28 for the first child.

The same inflation reading meant a bigger-than-forecast rise in inflation-linked business rates in England. Ryan said this could produce more than £1bn in extra Treasury receipts, paid mostly by organisations in the hospitality, leisure, education, health, transport and utility sectors.

September’s consumer-price inflation reading came in below the 3.9% wage-growth figure for the three months to July. The state pension would therefore almost certainly rise by 3.9% under the formula governing the triple lock.

The inflation report also made a Bank of England rate increase more likely. Its Monetary Policy Committee was due to meet next month, on 5 November, with the current rate at 3.7%. Rate setters were concerned that inflation would jump above 4% next year as higher oil and gas prices increased the price of a wider range of goods.

Martin Beck, chief economist at the consultancy WPI, said the higher-than-expected inflation reading made it almost inevitable that the MPC would raise rates on 5 November, but he cautioned against persistent increases in borrowing costs. “Raising interest rates cannot produce more oil or gas, and further tightening risks weakening an already fragile economy,” Beck said.

Chancellor John Healey blamed the inflation rise on the war in the Gulf. “We know that price rises from conflicts in the Middle East and Europe are hitting Britain and countries worldwide,” he said, adding that his budget would “drive for growth in every postcode” to improve living standards. A photograph showed Healey visiting a Shell UK gas terminal in Peterhead, Scotland, on Wednesday.

Charlotte O’Leary, an economist at the National Institute of Economic and Social Research, said the run of three months of rising annual inflation was likely to continue through the winter even if there were some resolution to the conflict in the Middle East. “Higher fuel and transport costs will likely push up food prices, and January’s large price cap increase will land as household energy demand peaks. Given this, inflation could reach 4%, double the Bank of England’s target, by early 2027,” she said.

The September reading extends a run of monthly increases that began earlier this year after the temporary US-Iran ceasefire expired and disruption at the Strait of Hormuz pushed fuel costs higher. As covered in August, UK inflation rose in July on surging gas costs, with analysts warning at the time that further monthly increases were likely through the rest of the year.