Inflation Surprise Offers Relief, But the UK Government Must Not Turn the Screw on Housing

The latest ONS inflation figures delivered a pleasant surprise this morning — and a timely one at that.

Headline CPI held steady at 3.8% in September, defying expectations of a rise to 4.0%. Core inflation eased to 3.5%, while services inflation stayed at 4.7%, both below market forecasts. In short, a clean sweep of better-than-expected readings across the board.

A sharper-than-expected fall in food and drink inflation and lower prices in recreation helped offset increases in transport costs, driven by motor fuels and air fares. Even owner occupiers’ housing costs (OOH) continued to ease, rising 5.2%, the lowest annual rate in two years.

Markets responded positively: swaps shifted down 6–9 basis points across the 2–10 year curve, with the 5-year now sitting around 3.59%. It’s a sign that expectations for Bank of England rate cuts in early 2026 are firming, while the near-term outlook remains one of stability.

Good News, But Fragile Foundations Remain

For property investors and borrowers, this data is encouraging. It confirms that inflation is continuing to cool without triggering broader instability, giving the Bank of England space to stay the course and build confidence around future rate reductions.

But the more important question now lies not with the Bank, but with the Government. With a difficult Budget ahead and pressure to plug fiscal gaps, the temptation to “milk” the UK property market — through tax changes, investor levies, or cuts to housing funding — must be resisted. Doing so risks destabilising one of the few engines of real investment and economic resilience the UK still has.

The housing sector is not a fiscal punchbag; it is the foundation of economic recovery. Undermining it to balance the books elsewhere would choke supply, reduce investment appetite, and make the affordability challenge worse at a time when the country can least afford it.

Certainty is Still the Missing Ingredient

Even as inflation cools, confidence remains brittle. Developers, landlords, and homebuyers are still navigating high borrowing costs and constrained liquidity. The one thing that would do most to unlock growth is policy stability — both monetary and fiscal.

A steady hand from the Bank of England and a disciplined Budget from the Treasury would together provide the certainty investors need to plan, fund, and deliver the homes Britain needs.