Inflation holds at 3.8% in boost for chancellor before budget

Inflation was unchanged last month at 3.8%, confounding expectations of a rise, in welcome news for the chancellor, Rachel Reeves, as she plans for her crucial budget next month.

- Heather Stewart

The Office for National Statistics (ONS) said yesterday inflation measured on the consumer prices index (CPI) remained at the same level in September as in August and July.

City expectations had pointed to a 4% reading but the ONS said upward pressure from transport prices was offset by slightly cheaper food and a slowdown in inflation for recreation and culture.

The September reading raised hopes that the Bank of England could cut interest rates sooner than expected, with markets moving their bets for a quarter-point reduction from March to February.

Policymakers are likely to welcome the fact that food prices declined 0.2% compared with August, the first monthly fall since May last year.

Annual food price inflation eased to 4.5%, from 5.1% in August, the first time it has slowed since March.