Responses to latest inflation figures

Wednesday, 22 October 2025 09:53

Chancellor of the Exchequer, Rachel Reeves said:  “I am not satisfied with these numbers. For too long, our economy has felt stuck, with people feeling like they are putting in more and getting less out. “That needs to change. All of us in government are responsible for supporting the Bank of England in bringing inflation down. I am determined to ensure we support people struggling with higher bills and the cost of living challenges, deliver economic growth and...Request free trial

Chancellor of the Exchequer, Rachel Reeves said: 

“I am not satisfied with these numbers. For too long, our economy has felt stuck, with people feeling like they are putting in more and getting less out.

“That needs to change. All of us in government are responsible for supporting the Bank of England in bringing inflation down. I am determined to ensure we support people struggling with higher bills and the cost of living challenges, deliver economic growth and build an economy that works for, and rewards, working people.”

CBI

Martin Sartorius, Principal Economist, CBI, said:

“Inflation came in lower than expected in September, bringing some relief to hard-pressed households, though it remains well above the Bank of England's 2% target. Price pressures should begin to slowly ease in the coming months, but we are unlikely to see a more substantial downshift in inflation until the first half of next year.

“Today's downside surprise raises the possibility that a rate cut by the Bank of England's Monetary Policy Committee could be back on the table in November. While some MPC members may prefer to keep rates on hold given the recent uptick in inflation expectations, September's softer reading could give the broader Committee greater confidence to reduce rates without risking further persistence in price pressures.”

Conservative Party

The Conservatives have today [22^nd October 2025] blasted Chancellor Rachel Reeves for driving up inflation, as new data confirms it has hit 3.8 per cent in the 12 months to September 2025.

Reeves' tax, spend and borrow doom loop has sent prices rocketing, with dire implications for ordinary families' finances.

Under the Conservatives, Britain recovered from the global inflation crisis and inflation was down to 2 per cent by the time of the election campaign.

Since then, it has remained double.

This is because Rachel Reeves launched a £40 billion tax raid and sent borrowing to alarming levels.

IFS Analysis suggests measures in Reeves' first Budget have added 0.9 percentage points to inflation - before borrowing is taken into account.

And just this week it was revealed borrowing hit its highest September level since the peak of the pandemic. And annual debt repayments are forecast to reach a staggering £100 billion.

Keir Starmer and Rachel Reeves have no backbone. They backed down on their botched welfare reforms, and caved in to the unions to agree inflation-busting pay rises for striking workers, further hiking prices and taking money out of people's pockets.

As rumours swirl of even more tax hikes at the next Budget, the Conservatives have called on Reeves to abandon her disastrous policy to date and focus on getting public spending under control, bringing inflation down in the process.

At their Conference earlier this month the Conservatives set out a plan to make £47 billion of savings, cut the welfare bill and reduce borrowing. The Conservatives are the only party with the strong team and the plan to deliver a stronger economy.

Sir Mel Stride MP, Shadow Chancellor of the Exchequer, said:

“Inflation remains at almost double the Bank of England's two per cent target because of Rachel Reeves' decisions – pushing up the cost of living and punishing those Labour promised to protect.

“This financial year Labour have borrowed £100 billion because they do not have the backbone to reduce spending. Combined with her £25 billion Jobs Tax, Rachel Reeves is pushing inflation higher and higher.

“Starmer and Reeves do not have the backbone to sort this mess out. Only the Conservatives have the plan and the strong team to break the doom loop and ease the cost of living by delivering £47 billion in savings and bringing inflation under control – delivering a stronger economy.'

ENDS

Notes to Editors:

Labour's Autumn Budget taxed work and pushed up borrowing:

Rachel Reeves increased taxes by £40 billion a year- meaning that the tax burden will reach a ‘historic high' of 37.7 per cent of GDP. Rachel Reeves raised taxes by £40 billion a year in her first Budget, having only set out £7 billion in manifesto tax plans. In the March 2025 Economic and Fiscal Outlook, Office for Budget Responsibility (OBR) said taxes would rise from 35.3 per cent of GDP to a ‘historic high' of 37.7 per cent in 2027-28 (OBR, Economic and Fiscal Outlook, 26 March 2025, link; The Labour Party, Labour's fiscal plan, 13 June 2024, link).

Despite Labour's manifesto ruling out taxes on ‘working people', Rachel Reeves introduced a Jobs Tax – a tax hike that will be paid for ‘largely [by] working people' according to the independent IFS. Labour's manifesto reads: ‘Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT'. However, Labour increased employer National Insurance from 13.8 per cent to 15 per cent. Paul Johnson, then Director of the IFS, said Labour's employer National Insurance hike would be paid for ‘largely [by] working people' (The Labour Party, Change, 13 June 2024, link; IFS, IFS Initial Response to Autumn Budget 2024, 30 October 2024, link).

Rachel Reeves then changed the fiscal rules to increase borrowing to a record high – breaking her promise not to ‘fiddle the figures'. Despite promising not to ‘fiddle the figures', in the Autumn, Rachel Reeves announced a new fiscal rule – public sector debt net of financial liabilities – meaning that public sector net debt is expected to reach 96.1 per cent of GDP by 2029-30 - the highest level seen outside the pandemic since 2010 (OBR, Economic and Fiscal Outlook, 26 March 2025, link; HM Treasury, Autumn Budget 2024, 30 October 2024, link; Bloomberg, November 2023, link; Philip Aldrick, Twitter, 3 August 2024, link).

During the first six months of the financial year, Labour borrowed £99.8 billion – £7.2 billion more than the forecast by the Office for Budget Responsibility (OBR) in March 2025. ‘The public sector spent more than it received in taxes and other income in the financial year (FY) to September 2025. Provisional estimates show it borrowed £99.8 billion over the six-month period, £7.2 billion (or 7.8 per cent) more than the £92.6 billion forecast by the Office for Budget Responsibility in March 2025' (ONS, Public sector finances, UK: September 2025, 21 October 2025, link).

Borrowing was only greater in 2020 at the height of the COVID-19 pandemic. ‘Borrowing (PSNB ex) in the first six months of this financial year (April to September 2020) is estimated to have been £208.5 billion, £174.5 billion more than in the same period last year and the highest borrowing in any April to September period since records began in 1993; each of the six months from April to September 2020 were also records' (ONS, Public sector finances, UK: September 2020, 21 October 2020, link).

The Institute for Fiscal Studies' (IFS) Green Budget made it clear that responsibility for the UK's economic difficulties lay at the Chancellor's door:

The IFS said Rachel Reeves' choices have driven high inflation. ‘In October 2024, the Chancellor raised the tax burden by a much greater amount, with a headline rise of around £40 billion. However, this was done through a combination of increases in duties (alcohol, tobacco, vehicle excise duty), VAT (on private school tuition fees) and an increase in employer National Insurance contributions. As discussed above, this combination was responsible for a significant proportion of the recent rise in headline inflation' (IFS, The IFS Green Budget: October 2025, 16 October 2025, link).

The IFS said Rachel Reeves' choices have added 0.9 per cent to the current rate of inflation. ‘Last autumn's Budget brought with it increases in duties on alcohol and tobacco and an increase in vehicle excise duty. There was also an extension of VAT to cover private school tuition fees. Cumulatively, we estimate these increases in indirect taxation have added 0.4 percentage points to the current inflation rate. Alongside this, a number of administered prices saw increases: bus fares; postal charges; the cost of applying for a passport; and, most significantly, water and sewerage costs. We calculate that these have added another 0.3 percentage points to the current rate of inflation. Lastly, we estimate that the increase in employer NICs that came into effect from April is adding around 0.2 percentage points to headline inflation' (IFS, The IFS Green Budget: October 2025, 16 October 2025, link).

IoD

Commenting on today's data from the Office for National Statistics that showed the annual rate of CPI inflation holding at 3.8% in September 2025, unchanged from 3.8% in August, Anna Leach, Chief Economist at the Institute of Directors, said:

“Lower than expected inflation will bring welcome relief to the Monetary Policy Committee, who have been split on the outlook. We should now be passed the peak of this inflationary cycle for consumers. Weaker energy price inflation and the steady slowdown in wage growth – a key driver of services inflation – should help sustain a further easing in price pressures. But food price inflation is set to carry on rising, which bears with it risks to the outlook.

“The MPC seems likely to hold fire on rates in their next meeting, which falls ahead of the Budget. Price signals remain mixed, with higher price expectations counterbalanced by a weak labour market and subdued confidence amongst businesses and consumers. Given the impact that last year's Budget had on inflation and confidence – especially through higher employer costs – any rate move is likely to be parked for now.”

Joseph Rowntree Foundation

Annual CPI inflation was 3.8% in September 2025
The Universal Credit Act 2025 increases the rate of the standard allowance in Universal Credit by 2.3% after applying the rate of inflation (September's CPI) for the 2026/7 year, resulting in a total uplift of around 6.2% for that year.
In cash terms the standard allowance is set to rise from £92 to £98 per week for singles and from £145 to £154 per week for couples.
The standard allowance will remain below the level needed to afford a basic basket of essentials, with the annual gap still likely to be more than £1,000 for singles and £2,500 for couples
JRF is calling for an independent process to advise on a standard allowance rate that reflects what people need to afford the essentials.

Chris Belfield, Chief Economist at the Joseph Rowntree Foundation (JRF), said:

“The majority of people on Universal Credit cannot afford essentials like food, heating and basic toiletries. That will remain the case despite an increase of around 6.2% to the standard allowance in Universal Credit, which still leaves a single adult with only £98 per week.

“It's not enough to tweak the system each year if the result is still far from a level people should be able to expect if they need support in hard times. The standard allowance, the basic rate that people on Universal Credit receive, should enable people to afford life's essentials. But it has never reflected what those essentials actually cost.

“We need an independent process to recommend a standard allowance that reflects what people need to get by. This would significantly strengthen our benefits system's ability to protect people from hardship when they need it most.”

British Chambers of Commerce

Reacting to the latest inflation data published by the ONS this morning, David Bharier, Head of Research at the British Chambers of Commerce, said:    

“Sticky inflation has been in danger of becoming a uniquely British disease as the UK continues to stand out from the rest of the G7.

“Today's CPI rate of 3.8%, coming in lower than expected, could provide some reassurance that we are at the peak, as expected by the BCC and Bank of England. However, the picture is mixed. Core inflation has slowed, but the reintroduced producer price data show factory gate prices rising at 3.4%, hinting that cost pressures remain in the pipeline, particularly for food and manufacturing.

“Our latest survey data shows that concern about inflation has been rising again and is now the second biggest issue for firms after taxation. But the two are closely linked: for the past year, businesses have told us that the rise in employer National Insurance Contributions has fed directly into price pressures and weakened investment. Labour costs continue to be the main cost pressure, cited by 72% of businesses.

“Higher energy bills are also a concern, cited by 50% of firms, with the rise in the energy price cap at the start of October indicative of the sustained pressure. Without action to support firms bring down costs, there is a risk of a repeat of a 2022-style energy shock.

“The upcoming Budget will be pivotal. Further tax rises could exacerbate a climate of low growth and rising costs. Unlocking growth through increased investment in infrastructure, AI adoption, and a bold push to increase exports, is the only long-term solution.”

Resolution Foundation

Headline CPI inflation held steady at 3.8 per cent in September – defying expectations of a rise to 4 per cent – but this welcome surprise comes at the wrong time for the millions of households receiving benefits.

The September inflation rate is used to determine benefit uprating the following April. As a result, this lower-than-expected inflation figure will mean a lower-than-expected boost to living standards in the spring.

With inflation at 3.8 per cent, the Foundation calculates that the standard allowance will be uprated by at least 6.2 per cent in the spring – a boost that is worth nearly £6 per week to a single adult aged 25 or over in receipt of the UC standard allowance. While this uplift will be welcomed by many, it is smaller than the 6.4 per cent boost they would have seen had September inflation been 4 per cent, as widely forecast.

Nonetheless, any sign of inflation faltering will offer relief to British households still feeling squeezed from historic price rises over the past three years.

The data reveals a range of downward pressures on prices, which kept the rate of inflation from increasing between August and September. Food inflation – a particularly visible element of price rises for families – dropped to 4.5 per cent, down from 5.1 per cent last month. Services inflation, a key indicator of underlying inflation for the Bank of England, held steady at 4.7 per cent rather than rising as expected, as erratic air fares plummeted in September.

Despite this, the UK remains an inflation outlier with the highest headline inflation rate among G7 countries.

Finally, today's weaker-than-expected inflation outturn is good news for mortgagors as it increases the chances that the Bank of England will cut rates early next month.

Lalitha Try, Economist at the Resolution Foundation, said:

“Price rises held steady at 3.8 per cent last month – a welcome downside surprise on inflation – but this unfortunately comes at the wrong time for millions of families receiving benefits.

“September's inflation rate will be used to calculate benefit uprating in April next year, meaning that a single adult aged 25 and over receiving Universal Credit will see a nearly £6 a week boost to their standard allowance – less than if inflation had been 4 per cent as forecast.

“This latest inflation rate is also key for the Bank of England ahead of its next policy meeting at the start of November. Here, there was good news for mortgagors with CPI inflation coming in below expectations, making an interest rate cut more likely.”