London, 21 October 2026 — EBM Newsdesk Analysis — By Anthony Gill
UK inflation is rising again. The consumer prices index rose by 3.5% in the year to September, according to the Office for National Statistics. That was higher than expected, and it confirms that the economic damage from the war in Iran is spreading through the economy. It also makes an interest rate rise in November far more likely.
Energy is the main driver. High oil and gas prices are still working their way through supply chains, and motorists are being hit hardest at the pumps. Food prices have held steadier, because retailers and manufacturers have absorbed much of the extra cost. That cannot last. If energy stays this expensive, those costs will soon be passed on to shoppers.
Why the Bank of England Is Worried
The Bank had expected inflation to average 3.75% in the final quarter of this year and approach 4% in early 2027. Those forecasts now look too low, and its 2% target is moving further out of reach.
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SubscribeThe more worrying numbers are underneath the headline. Services inflation rose from 3.4% to 3.7%. Core inflation, which strips out energy, food, alcohol and tobacco, rose from 2.6% to 2.8%. Both suggest that price rises are becoming embedded in the economy rather than passing through as a one-off energy shock. That is the scenario rate-setters fear most.
Markets now see a November rate rise as increasingly likely, with further increases to follow. After a long run of UK growth beating forecasts, borrowers face a sharp change of direction. The one thing that might limit the damage is a weaker jobs market. Vacancies are falling and companies are reluctant to hire, which could stop high inflation from feeding into wage demands.
The Chancellor’s Shrinking Room
The public finances have also got worse. Public sector borrowing reached £24.5bn in September. That was above the £23.9bn markets expected and the £22.5bn the Office for Budget Responsibility forecast in March. Borrowing for the financial year to date is now £6bn above the OBR’s forecast.
With global bond markets already on edge and the IMF urging rich nations to cut borrowing, the Chancellor has little room for giveaways. Expect a cautious Budget, with the hardest choices pushed into next year.
No Relief From Oil
There is little sign of relief on energy. Brent crude remains above $110 a barrel and has risen by more than 10% this month. Saudi Arabia has been drawn deeper into the conflict by continued Houthi attacks, and strikes on ships in the Strait of Hormuz have intensified. Pakistan-led mediation with Iranian officials has so far produced nothing concrete.
Against this backdrop, the government has approved the Jackdaw gas field in the North Sea. It could eventually supply around 6% of UK North Sea gas production, but it is no quick fix. Production is still some way off, and UK wholesale prices are set largely by international markets.
Wall Street Looks to Musk
In the US, investors are largely looking past inflation and focusing on earnings. SpaceX has led the excitement after third-quarter revenue rose 161%, and Musk has confirmed talks on a possible tie-up with Tesla. A combined group would be valued at around $3.5tn.
The move has an air of inevitability. Musk has already folded his AI operations into SpaceX, and Tesla’s work on robotics and self-driving cars increasingly overlaps with the rest of his businesses. As EBM has reported, the Musk empire has become ever more circular. His companies invest in and trade with each other.
Shareholders would have to approve, but Musk’s record of getting huge pay packages through suggests he would likely get his way. The strategic logic is clear: shared expertise in AI, chip design, robotics and connectivity. The risks are just as clear. Investors would own a sprawling group with vast spending commitments, and Musk would have more freedom to move money between businesses. SpaceX has already shown how quickly sentiment can turn.
What I Think
Britain is heading back into a period of rising rates. Energy started the problem, but services and core inflation show it is spreading. The Bank cannot afford to wait and see, and a November rise now looks close to certain. For households, mortgage relief is over before it really began. For the Chancellor, the Budget will be about damage limitation rather than ambition. As long as oil stays above $110, neither problem goes away.
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