Wealth managers discuss the impact on the economy and asset allocation after annualised inflation remained unchanged in September, and below expectations.

This week, the UK Office for National Statistics said that annualised inflation came in at 3.8 per cent in September, unchanged from the 3.8 per cent reported in August and July.

It had been forecast to come in at 4 per cent by the market, signalling good news for UK Chancellor of the Exchequer Rachel Reeves ahead of the Autumn Budget.

Core Inflation came in at 3.5 per cent in the 12 months to September, down from the 3.6 per cent in August and below the 3.7 per cent forecast by the market.

These figures raised hopes that the Bank of England (BoE) could cut interest rates earlier than anticipated.

Here are some reactions from wealth managers to the news.

Nicholas Hyett, investment manager, Wealth Club
"A surprise inflationary undershoot will spark relief all round. True, prices are still rising at nearly twice the Bank of England's target, but if things get no worse it’s unlikely the rate setters on Threadneedle Street will have to start hiking interest rates again and, fingers crossed, that leaves enough oxygen for the economy to pick up some momentum.

“The rollover in food inflation will be particularly welcome, and while services inflation is still high (at a whopping 4.9 per cent) there's hope that it will subside once we lap [factor in] the higher minimum wage and National Insurance contributions the government imposed on employers at the start of the year. It's possible the UK is escaping the self-imposed inflationary exceptionalism created by higher taxes and a weakened trade position. We just hope the government doesn't manage to repeat last year's trick in November by carefully selecting tax increases that could have been designed to return the UK to inflationary purgatory."

Luke Bartholomew, deputy chief economist at Aberdeen
"Inflation was widely expected to pick up in this report so the fact that it hasn't is a positive surprise for the Bank of England and markets. There might be some technical factors around airline prices that are helping this report, but more fundamentally last week's labour market report also showed that wage growth is moderating. So on balance the UK's inflation problem looks slightly less bad now than it did a few weeks ago. A rate cut in November may still prove to be too soon, but the prospect of a December rate cut has increased and we still expect significant easing over the next year."

Nathaniel Casey, investment strategist at UK wealth manager Evelyn Partners
“The softer print, below the Bank of England’s forecasted September peak of 4 per cent, offers some relief ahead of the Budget season. It is particularly relevant for welfare uprating and the state pension triple lock – though with earnings growth at 4.8 per cent, that metric is likely to dominate the calculation for pensioners. Despite the positive surprise, inflation remains nearly double the BoE’s 2 per cent target. Money markets have barely reacted, with no change to interest rate expectations. Currently, no further rate cuts are priced in for 2025 and just 50 basis points expected in 2026. The BoE remains the most cautious among developed market central banks in the rate-cutting cycle.”

Peter Goves, head of developed market debt sovereign research at MFS Investment Management
“There was a welcome downward surprise to UK inflation this morning with headline the consumer price index (CPI) flat at 3.8 per cent, below expectations of 4 per cent. More importantly both core and services also came in below expectations. Together with subdued growth data and falling private sector wages, we believe the door is open for another cut later this year (which has not been fully priced). This keeps us constructive the front end of the gilt curve.”

Charlie Ambler, co-chief investment officer and partner at wealth management firm Saltus
“Inflation in the UK stubbornly remains at elevated levels, not easing in the way markets and households would like to see. With this month’s CPI holding firm at 3.8 per cent, the Bank of England is unlikely to abandon its plan of cautious rate cutting but it may well delay the next round – the emphasis remaining firmly on controlling services inflation and wage pressures rather than rushing to ease policy.

“The wider backdrop will influence this decision making. As the Government prepares the Autumn Budget and public finances continue under pressure, the risk of additional taxation or a continuation of fiscal drag is growing. That combination of sticky inflation and fiscal uncertainty is pushing investors to seek safe haven assets – demonstrated by gold hitting another record high this month – and emphasise quality and resilience in their portfolios. From an investment perspective, this means maintaining discipline, building diversification, and ensuring that risk is taken in areas where the risk-reward profile is balanced and the potential returns justify the exposure.”

Joaquin Thul, economist at EFG Asset Management
“Although this number will be welcome by monetary policy committee (MPC) members, and adds to recent weakening data in UK wages growth, it is unlikely to be sufficient to swing the vote of the committee for a rate cut in November. While inflationary pressures have softened, and have come down below BoE's expectations, risks remain tilted to the upside. Therefore, the MPC is likely to want to see further progress in services inflation and wage growth before cutting rates again. However, this does leave the door open for a potential rate cut in December, if economic conditions and price pressures continue along these same lines.”

Kindar Brown, senior financial planner at Rathbones
“With inflation still running at almost double the 2 per cent target, the latest reading does little to strengthen the case for looser monetary policy. Price growth remains stubbornly high and continues to squeeze household budgets, even as some costs cool. The headline figure was tempered by easing food prices and slower inflation in the recreation and culture sector, which helped offset upward pressure from higher airfares and rising petrol and diesel costs.

“The figure also sets the stage for the government’s next round of uprating. Under the state pension triple lock, payments are set to rise by 4.8 per cent from April 2026, reflecting the May-July wage growth figure, which was the highest of the three triple-lock measures (inflation, earnings, or 2.5 per cent). This means that the new state pension will sit just £22 below the frozen personal allowance (£12,570). However, with a multibillion-pound fiscal black hole to fill and a ballooning welfare bill, the Chancellor may yet reconsider the generosity of the triple lock. The latest inflation figure also complicates the Bank of England’s task. While inflation has fallen a long way from its double-digit peaks, it remains painfully high for many households – a reminder that the journey back to price stability is proving long, uneven, and far from over.”

David Roberts, head of fixed income at Nedgroup Investments
“With only a few weeks until the Budget, UK inflation data was eagerly anticipated. Its release this [yesterday] morning was good news for Chancellor Reeves. Although still elevated, the lower-than-anticipated number helps in several ways:

-- Slightly weaker sterling helping Britain’s tariff beleaguered export sector;

-- Lower gilt yields, reducing the interest burden on the national debt;

-- Lower inflation linked welfare costs, improving the chances of obeying fiscal rules; and

-- A greater chance that the Bank of England will cut rates later this year, further boosting each of the above.

“As recently as February, the UK was borrowing far less than the US. That changed, with bowing costs for the UK moving to close to 0.7 per cent above the US equivalent. That’s pretty cheap versus historic norms. The move meant that owners of gilts underperformed owners of US Treasuries by around 7 per cent. A lot for core bonds. We bought – first taking our exposure to around 5 per cent and then latterly above 10 per cent as the outlook for the UK improved. Gilts still look cheap even after the recent rally. We retain a positive position, not least as most investors still seem underweight and covering of those short positions can see the rally go further.

“However, it is normally wrong to look a gift horse in the mouth. And with ongoing headline angst ahead of the UK Budget, the politically-driven outlook for UK bonds remains uncertain. Gilt value remains good. Recently it was great. We halved our position. It’s nice to be in a position to buy back should sentiment again turn negative.”