Data from the Office for National Statistics showed that British inflation unexpectedly remained at 3.8% for the third consecutive month in September.
Transport made the largest contribution to the monthly change, while entertainment and culture, food and non-alcoholic beverages made the largest contributions, offsetting the decline.
While this number is still high, it is lower than expected.
Economists generally predict it will peak at 4% in September.
Earlier this month, Deutsche Bank’s chief UK economist Sanjay Raja said September’s data “could mark the peak of inflation this year and probably the peak of this cycle”.
However, the IMF said it expected UK inflation to remain above the bank’s target for more than a year.
This is more generous than the forecast given by the MPC at its last meeting in September, when it said the cost of living would hit 4% this month before falling back to the 2% target by mid-2027.
Last week, the Bank of England’s chief economist Hugh Peel warned that the bank must be wary of cutting interest rates “too far or too quickly.”
“All of this supports my view that the Monetary Policy Committee should take a more cautious step from now on in removing restrictions on monetary policy to ensure that deflation continues to achieve the 2% target,” Peel told a conference of the Institute of Chartered Accountants in England and Wales in London.
Peele, one of the more hawkish members of the MPC, added: “While I expect further rate cuts over the coming year if the economic and inflation outlook develop as broadly as the MPC expects, it remains important to guard against the risk of cutting rates too far or too quickly.”
It has been cut five times since August 2024 and currently stands at 4%.
Bank of England Governor Andrew Bailey also said last week that the latest round of labor market data supported his view that underlying inflationary pressures were cooling.
Those official figures showed average wage growth in the three months to August was 4.7%, down from 4.8% in the three months to July.
The national unemployment rate increased slightly from 4.7% to 4.8%.
Rachel Geddes, strategic lender relations director at the Mortgage Advice Bureau, said: “While inflation remains stable at 3.8%, reflecting continued pressure from political uncertainty and rising costs, the mortgage market continues to remain resilient. In fact, many people don’t realize they are now in the best position to get onto the property ladder – especially compared to this time last year, or even six months ago.”
“A ‘keep calm and carry on’ approach is needed here. While inflation remains well above the 2 per cent target, the property market remains strong and more aspiring buyers than ever are realizing they can get on the ladder faster.”
“Affordability is improving and customers are benefiting from higher average borrowing limits and a wave of new innovative products. First-home buyer interest is strong, with mortgage application numbers up 9.7% so far this year.”
Meanwhile, Propertymark chief executive Nathan Emerson added: “We remain in a phase where the domestic and global economies remain sensitive. Over the past 12 months we have seen inflationary trends pick up; however, thankfully we are in a much better position than we were three years ago, when inflation was 11.1%.”
“The Bank of England remains in a challenging position in calling for further reductions in the current base rate.”
“However, there is widespread optimism going into the new year that the Monetary Policy Committee may consider further cuts to the base rate, all of which should help provide additional housing affordability for many consumers.”
