Inflation remained unchanged at 3.8% during September, defying City expectations of a rise to 4% and raising hopes that interest rate cuts could come sooner than anticipated.

The Office for National Statistics reports annual food price inflation eased to 4.5% from 5.1% in August, offsetting rises in petrol and air fares, which pushed transport costs up 3.8% year on year from 2.4% in August. The money markets have reacted by moving their bets for the first full quarter-point reduction from March to February.

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.”

Chancellor 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.”

The Bank of England‘s monetary policy committee meets on 6 November, shortly before Reeves’s Autumn Budget on 26 November.

Industry reaction

Nathan Emerson, CEO of Propertymark

“We still sit within a phase where the economy remains sensitive, both domestically and globally,” he says.

“We have seen inflation trend back upwards over the last twelve months; however, we are thankfully in a much better position than we were only three years ago, when the rate of inflation sat at 11.1%.

“The Bank of England is still in a challenging position when it comes to making any calls to further reduce the base rate currently. However, there is widespread optimism into the new year that we could see the Monetary Policy Committee consider new dips in the base rate, all of which should help provide additional affordability for many consumers regarding housing.”

Jason Tebb, President of OnTheMarket

While inflation was lower than expected and unchanged at 3.8 per cent, it is still nearly double the Bank of England’s 2 per cent target,” he says.

“With the Bank holding interest rates at 4 per cent at its last meeting, borrowers may be disappointed that rates are not coming down faster but the focus at least is on stability.

“Recent rate reductions have given a real boost to buyer and seller confidence and activity over the past year, although affordability still remains a challenge and is keeping property prices in check to an extent.

“With the Budget imminent, a focus from policymakers on stability, assisting confidence and supporting the housing market – which is so important to the wider economy – is crucial.”

John Phillips, CEO of Just Mortgages and Spicerhaart

“Once again inflation has defied expectations, with CPI holding steady at 3.8% for a third consecutive month,” he says.

“This is absolutely welcome news and poses two real questions: have we reached the peak of inflation and what does this mean for the interest rate decision next month?

“The elephant in the room remains the upcoming Autumn Budget, with further tax changes likely to feature in the Chancellor’s plans. We saw the inflationary impact of last year’s Budget as employers and businesses passed on the cost of higher taxation to consumers.”

Tomer Aboody, director of specialist lender MT Finance

“Lower interest rates give buyers more confidence in moving, which in turn has brought about an increase in pricing,” he says.

“However, despite cheaper rates, transactional levels remain stunted and the housing market is subdued, primarily due to the uncertainty surrounding next month’s Budget.”