Inflation rises to 3.5% in "blow" – what does this mean for borrowers, savers and the pound?

Inflation has risen to 3.5% – but what does this “blow” mean for borrowers and savers?

The Consumer Prices Index (CPI) rose by 3.5% in the 12 months to September 2026, up from 3.1% the previous month.

On a monthly basis, CPI rose by 0.4% in September 2026, compared with little change in September 2025.

Transport, particularly motor fuels, made the largest upward contribution to the monthly change, while restaurants and hotels made the largest, partially offsetting, downward contribution.

Experts said the increase could delay Bank of England rate cuts and make it harder for lenders to reduce mortgage pricing. 

Existing fixed-rate borrowers will not see their payments change immediately, but people approaching the end of a deal may face higher refinancing costs and should not base their plans on rates falling soon.

Savers may benefit if interest rates remain higher for longer, but experts warned that the figure advertised on an account does not tell the whole story. 

Any savings rate below 3.5% would fail to keep pace with inflation, meaning the money would continue to lose purchasing power.

Philly Ponniah, Chartered Wealth Manager and Financial Coach at Philly Financial, said it's another negative hit for families.

She added: “Inflation rising to 3.5% is another blow for households already feeling squeezed. It’s not just that everyday essentials cost more, it’s that the prospect of cheaper borrowing is moving further away. 

"For mortgage holders, higher inflation increases the pressure on the Bank of England to keep interest rates higher or raise them further. Those on fixed deals have some protection for now, but anyone remortgaging needs to prepare for potentially higher repayments. 

"For savers, higher interest rates might sound like good news, but it’s the return after inflation that really matters. If your savings earn 3% while inflation is 3.5%, you’re still losing purchasing power.”

Rupert Collingwood, Founder at The London Broker, said inflation can affect the ability of buyers in the property market.

He added: "Inflation seems to be a problem that simply won’t go away. Every point the inflation figure goes up, borrowers' access to funding is reduced. For the housing market, high inflation reduces the ability of buyers to borrow which in turn reduces the prices sellers are able to achieve. 

“However, what we seem to be witnessing beyond this simple impact is that reactionary inflation is leading to a volatile mortgage market, with rates coming and going in days rather than months. This is encouraging would-be home movers and first-time buyers to stay put, which in turn is also impacting values.”

Rohit Kohli, Director at Romsey-based The Mortgage Stop, said mortgage rates will stay higher for longer.

He added: “The rise is mainly down to fuel costs pushing through into prices. But core and services inflation have gone up too, and that's the bit the Bank of England won't like. For borrowers, it's not the news they wanted. 

"It won't help bring mortgage rates down, and if anything, it probably means rates stay higher for longer. If your deal ends soon, don't wait around hoping rates will fall. Get your options lined up now. For savers, rates may stay higher for a bit longer. 

"But if your cash is sitting in an account paying less than 3.5%, it's losing value. It's worth shopping around. The pound may get a short-term boost if rate cuts get pushed back. But this isn't the news the Chancellor wanted a week before the Budget, so we'll have to wait and see how the markets react.”

Andrew Montlake, CEO at London-based Coreco, said inflation is proving stubborn.

He added: "This is an uncomfortable inflation number and will do little to calm mortgage markets. For borrowers, it means hopes of meaningful rate cuts are pushed further away and swap rates could remain under pressure, making cheaper fixed mortgages harder to deliver. 

"For savers, higher-for-longer interest rates can support savings returns, although 3.5% inflation means the real return still matters. Investors face a more mixed picture as higher rates can weigh on asset prices and economic growth. 

“For the pound, stickier inflation can offer some support if markets expect UK rates to stay higher, but that is far from guaranteed if investors become more worried about the wider economy. The overriding message is that inflation is proving stubborn, and that keeps uncertainty firmly in the driving seat."

Eugen Neagu, Director at N2 Asset Management Limited, said the pound is doing well currently against the dollar and the euro.

He added: "It seems the pound has reached stability versus the dollar around $1.33, so as long as there is no further devaluation, it should not add more inflationary pressures on energy prices and imports of goods and services that are priced in dollars. Versus the euro the pound has appreciated which makes imports from Europe cheaper, helping with reducing inflation as long as their export prices in euro do not go up. 

"The savers with cash in the bank have started to look at investing and getting financial advice, however the stock markets are quite highly valued and some may not be able to stomach temporary losses, even 10%. You cannot become an investor only when inflation gets higher and may push your cash savings into negative real return."

Scott Gallacher, Director at Leicester-based Rowley Turton, said inflation could either strengthen or weaken the pound.

He added: "For borrowers, rising inflation is a mixed blessing. On the one hand, it erodes the real value of your debt, especially if your wages are rising too. However, it also makes interest rate rises more likely, potentially increasing mortgage payments for those on variable rates or coming to the end of a fixed deal. 

"For savers, it's a similar story. Inflation eats away at the purchasing power of their savings, although they might benefit from higher interest rates on their deposits. As for the pound, higher inflation could weaken sterling, although the prospect of higher interest rates might actually strengthen it. 

“Interestingly, for investors with a well-diversified portfolio, a weaker pound isn't necessarily bad news. It can increase the value of their overseas investments when converted back into sterling.”

Harry Goodliffe, Director at Winchester-based HTG Mortgages, said any boost to sterling could come at a high cost for borrowers.

He added: "Borrowers have been paying for this number since September. Lenders saw inflation heading up, so 3.5% doesn’t change what a new fix costs; it just confirms why. The cause is fuel, which the Bank of England can’t do anything about, so I expect a rate rise before Christmas. 

“Savers won’t be cheering either, because 3.5% inflation takes most of what a savings account pays. The pound may strengthen on rate expectations, but a stronger pound built on dearer money is nothing to celebrate. Expect fixes to stay high, savings to go nowhere in real terms, and a Government blaming everyone but themselves.”