A feature of economic theory is that it is put under pressure each month. For example yesterday’s disappointing figures on the UK public finances and in particular the persistently higher borrowing suggested another rise in the UK inflation rate today. Whereas in reality the Office for National Statistics released this.
The Consumer Prices Index (CPI) rose by 3.8% in the 12 months to September 2025, unchanged from August.
On a monthly basis, CPI was unchanged in September 2025, as in September 2024.
As you can see it was unchanged all round. That was better than expectations as I feared a rise to 4% and some were expecting 4.1% or 4.2%. So there was no extra push and Bank of England Governor Andrew Bailey will be delighted in spite of yet another forecasting failure.
CPI inflation was projected to stay around 3¾% over the second half of this year, with a temporary peak of 4.0% in September, in line with the projection in the August Report. This continued to reflect some near-term upward pressure on inflation largely from food and services prices,
The research student presenting the morning meeting will be able to present a picture of the Governor masterfully dealing with the naysayers and that the September interest-rate cut was well judged. He or she may even get their contract renewed today. Indeed promotion may await if they were sharp enough to note the response in the UK Gilt or bond market.
NEW Ten year Uk gilt yield tumbles to 2025 low on below expectation inflation number… Now 4.40 – was 4.8 last month. ( BBC economics editor Faisal Islam)
If they can link that to Bank of England policy then promotion is on the cards.
Best for them to avoid what seems an obvious consequence to me which is that if the Bank of England had made more of an effort to reduce inflation then UK bond yields would not be an outlier and would be much lower. For example the US ten-year is 3.96% and before this recent phase we were usually below that. Of course that contradicts central banking orthodoxy which is that Bank Rate cuts lead to lower Gilt yields.That ignores the reality we saw which at one point was of a 1% reduction in Bank Rate accompanied by a 1% rise in Gilt yields. Remember for them theory always trumps reality. Also it is very dangerous that such a deluded crew are the biggest investors in the UK Gilt market but you can at least see why they are presently losing so much money.
UK House Prices
A particularly sharp research student will have rushed to the Governor’s office at 9:30 am with this.
The average UK house price was £273,000 in August 2025 (provisional estimate), which is £8,000 higher than 12 months ago….On a non-seasonally adjusted basis, average UK house prices increased by 0.8% between July 2025 and August 2025.
Such news is always welcome and all present will all independently decide to put aside any group think and immediately congratulate the Governor on this. Nobody there will be interested in the other details.
On a seasonally adjusted basis, average house prices in the UK increased by 0.2% between July 2025 and August 2025…..Average UK house price annual inflation was 3.0% (provisional estimate) in the 12 months to August 2025, down from the revised estimate of 3.2% in the 12 months to July 2025.
What happened in September?
One area that helped the numbers was transport as we saw this.
On a monthly basis, prices fell by 2.3% in September 2025,
The falls in motor fuels were relatively minor at 0.2 pence for petrol and 0.4 pence for diesel. But then we arrive at an issue I have been warning about for more than a year now.
Air fares fell by 28.8% between August and September 2025, which was the third-largest September decrease since the collection of airfares changed from quarterly to monthly in 2001.
A downwards push on the numbers which if true is welcome, but I am sorry to have to tell you that this series looks to be out of control. Back in January I pointed this out officially and think it is revealing that there has been no reply.
This by the way is perfectly consistent with usual behaviour at the Office for National Statistics which was criticised by Parliament ( PACAC) in 2019 as being keen to bury bad news.
Food Prices
According to our official statisticians these fell too.
On a monthly basis, food and non-alcoholic beverages prices fell by 0.2% in September 2025, compared with a rise of 0.4% a year ago. This was the first time since May 2024 that prices have fallen on the month.
I looked further to see this.
Due to vegetables including potatoes; bread and cereals; milk, cheese and eggs;
I have seen a change in potatoes in that we have seen a reversal of the shrinkflation trend as we have returned to 2.5kg bags after them dropping to 2kg. Plus some shops have brought the price of 4 pints of milk back from £1.75 to £1.65. But on the other side of the coin the Fin Carre bar of fruit and nut at Lidl I have mentioned in the past has risen from £1.69 to £1.85 which makes me wonder about the category including chocolate being unchanged on a monthly basis. A year ago it was £1.09.
This is different to what the British Retail Consortium found in September.
Food inflation held steady at 4.2%, unchanged from August, but still above the 3-month average.
But does seem consistent with the milk price change.
wholesale dairy costs are now falling notably
On the other side of the coin clothing prices rose by 2.4% in case you were thinking something had to rise to balance this out.
Here is a little curiou for you
The largest downward effect came from live music, where monthly prices fell by 8.6% compared with a rise of 5.8% a year ago.
Has anyone experienced this?
Cost of Living
The better than expected theme shifted to an outright improvement here as our best inflation measure recorded a fall.
The all items RPI annual rate is 4.5%, down from 4.6% last month. The all items RPI is 406.1, down from 407.7 in August.
I would provide more detail but the ONS hides it these days as part of its commitment to openess.
Looking Ahead
We have the return of the producer price numbers which is welcome.
On a monthly basis, producer input prices fell by 0.1% and producer output (factory gate) prices showed no movement in September 2025.
As you can see prices were flat to lower which provides some hope for future inflationary trends. The annual figures are below but take care because they cober the period where our official statisticians were forced to suspend the numbers.
Producer input prices rose by 0.8% in the year to September 2025, up from a rise of 0.2% in the year to August 2025.
Producer output (factory gate) prices rose by 3.4% in the year to September 2025, up from a rise of 3.1% in the year to August 2025.
Looking ahead I note that the price of Brent Crude Oil is around 6% lower at circa US $62 per barrel than it was a month ago.
Comment
As you can see there are some welcome details in the inflation numbers. This is both welcome and unwelcome for UK Chancellor Rachel Reeves. The welcome part is reinforced by the fall in the UK 5-year yield to 3.86% which if it persists will reduce UK mortgage rates and hence the RPI inflation measure. The problem for her is that her Budget of October 2024 pushed UK inflation onto a higher path both explicitly and implicitly via raising employment costs. As she needs to raise taxes again due to yesterday’s poor public finances numbers how can she do this?
“There will be targeted action in the Budget around prices because I want to bring down the cost of living for families,” Reeves said on Tuesday. “And I want to see interest rates, which have gone down five times in the last year and a bit, come down further.” ( Financial Times)
