U.K.'s CPI in September Is The Turning Point, Says Berenberg

09:50 AM EDT, 10/22/2025 (MT Newswires) -- The United Kingdom's unchanged consumer price index inflation of 3.8% year over year in September undershot the Bank of England and Bloomberg consensus forecast that it would take a final step up to 4.0% year over year, said Berenberg.

After pay growth came in below the BoE's prediction in August, evidence that inflation is cooling more swiftly than the central bank expected is mounting after Wednesday's data, noted Berenberg.

The bank still thinks that the BoE will wait for a downward trend in services inflation to emerge before lowering interest rates again, in Q1 2026. But weaker price pressures in the rest of the inflation basket hint that it could happen sooner than Berenberg expects.

Overall, the inflation data for September adds to the bank's conviction that inflation will trend down from here to 2.3% year over year by Q4 2026. A major reason why Berenberg believes that the BoE will hold off from another interest rate cut until early 2026 is that companies still plan to raise selling prices by almost 4% over the next 12 months.

This suggests that the decline in core inflation in September doesn't mark the start of a trend, stated the bank. However, the softening of price pressures in September suggests that companies may find they don't have the pricing power to realize those price ambitions.

Berenberg's base case remains that stubborn core and services inflation will prevent another interest rate cut this year. The risk is that underlying inflationary pressures ease earlier than the bank predicted, allowing the BoE to press on with another cut before Christmas.

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