UK inflation jumps to 3.5% in September – its highest level so far this year

While the cost of living continues to rise, savers still have plenty of opportunities to get a real return on their hard-earned cash.

The annual rate of UK inflation reached its highest level so far this year after jumping from 3.1% in August to 3.5% in September, according to figures released today from the Office for National Statistics (ONS). It comes as ongoing conflict in the Middle East continues to disrupt global oil supplies.

Latest UK Finance Trends: Graph showing the rate of UK inflation between 2014 and September 2026.

Notably, rising motor fuel costs made another significant upwards contribution; the average price of petrol and diesel hit more than four-year highs of 169.5p and 192.5p per litre, respectively, last month. As a result, overall motor fuel prices rose by 29.8% in the year to September, compared with 23% the previous month.

Across other divisions, the higher costs of live music and computer game downloads also had an upwards effect. On the whole prices in the recreation and culture division increased by 2.3% in the year to September, compared with 1.6% in August.

Unfortunately, households must prepare for prices to rise even more rapidly. Speaking last month, Clare Lombardelli, Deputy Governor for Monetary Policy at the Bank of England, revealed that the Bank’s most recent inflation forecasts were “materially higher” than projected in July. The latest forecasts point towards inflation accelerating to around 3.7% in the final months of this year (Q4), and to around 4.2% at the start of next year (Q1).

The impact on mortgage borrowers

The figures released today, and latest inflation forecasts, will likely strengthen predictions for the Bank of England to raise the UK’s central interest rate when its Monetary Policy Committee (MPC) next meets in a couple of weeks’ time.

Such expectations, along with recent swap market volatility and a global bond sell-off, have already prompted some mortgage lenders to review their prices and caused average fixed rates to soar in recent weeks. The typical five-year fixed mortgage rate, for example, jumped from 5.63% at the start of September to 6.01% today (according to Moneyfacts data). Meanwhile, the average two-year fixed mortgage rate also lingers around the 6% threshold after rising from 5.59% to 5.97% over the same period.

“The big question for those comparing mortgage rates right now is whether to grab a fixed or tracker rate deal,” said Rachel Springall, Finance Expert at Moneyfactscompare.co.uk.

While a fixed rate “provides peace of mind”, she reminded borrowers that “no one has a crystal ball to predict where interest rates might go in coming years” and that the most suitable deal will come down to their personal circumstances.

“A base rate tracker mortgage could be a great alternative for borrowers who may want to exit their deal early, as there are some that either do not charge an early repayment fee, or only charge a flat fee for early redemption,” said Springall. With some base rate tracker mortgages currently charging around 4%, she added that “borrowers could still be better off than if they had locked into one of the lowest fixed rates” – even if the base rate rises three times by 0.25 percentage points over the next two years. That being said, it's crucial to consider whether you could still comfortably afford your mortgage repayments if rates were to rise in the future - particularly as there are expectations for the Bank of England to increase the base rate on 5 November 2026.

Anyone coming to the end of a fixed deal and uncertain about their next steps would likely find it useful to speak to a broker. In some cases, lenders might let borrowers secure a new deal up to six months before their current one ends which could safeguard against mortgage rates rising even higher in the meantime.

Savers “can’t afford to be complacent”

It’s not just mortgage borrowers who need to consider their options; with the cost of living continuing to rise, it’s also crucial that savers review where they keep their cash to make sure it’s working as hard as possible.

 “Savers can’t afford to be complacent about where their money is held,” said Caitlyn Eastell, Personal Finance Analyst at Moneyfactscompare.co.uk. Even though “watching a savings balance creep up can offer reassurance”, she warned savers that their money will effectively lose value in real terms if stored in an account that fails to keep pace with inflation.

Fortunately, over 1,600 savings accounts could better the rate of inflation at the time figures were announced this morning, including more than 870 fixed bonds.

“While volatile swap rates have created uncertainty for borrowers, they have helped to push fixed rate bonds to their most attractive levels in years,” said Eastell. At the start of this month, top returns on fixed bonds of one or more years climbed above 5% for the first time in nearly three years (December 2023).

Latest UK Savings Trends: Graph showing the rate of UK inflation and the Moneyfacts Average New Savings Rate between 2011 and September 2026.

What’s more, “those who require more flexibility needn’t miss out”, Eastell added, as the best easy access savings rates have also risen in recent years. However, she reminded savers that “improvements across the market may not translate into better rates on existing accounts” and encouraged them to regularly review whether they’re receiving a competitive return.

Although inflation remains a challenge, “simply comparing and switching deals can be one of the quickest ways for savers to improve their returns without having to save more”, Eastell concluded.