Inflation Hits 3.5% as Energy Costs Surge: UK Business Register Shows 148,000 Companies in Liquidation

UK inflation accelerated to 3.5% in the year to September 2026, up from 3.1% the previous month, marking the highest rate in nearly a year and intensifying pressure on Chancellor John Healey ahead of his first Budget on 28 October^[1]. The jump, announced by the Office for National Statistics on 21 October 2026, was driven primarily by sharp increases in petrol and diesel prices as conflicts in the Middle East and Europe continue to squeeze global oil supplies^[2].

Motor fuel prices rose by 29.8% in the period covered by the figures, with the average price of petrol climbing 8.2p per litre to 169.5p per litre between August and September, while diesel reached 192.5p per litre^[2]. Petrol prices in September were the highest since August 2022, the ONS said^[2].

The effective closure of the Strait of Hormuz by Iran after US and Israeli attacks has severely disrupted a major global supply line for crude oil, while oil refining capacity has been hampered globally by Russian and Ukrainian attacks on each other's infrastructure after Russia's invasion of Ukraine^[2].

Rising Inflation Compounds Budget Constraints

The inflation data arrived alongside government borrowing figures showing UK borrowing jumped to nearly £25bn in September, meaning borrowing for the financial year to date is running £6bn above official forecasts^[2]. National Debt has topped £3 trillion for the first time in the official figures^[1].

BBC Economics Editor Faisal Islam noted that the figures for inflation and for the public finances set out the chancellor's Budget balancing act in clear terms, with the public finances remaining under pressure from the double whammy of rising inflation and borrowing costs^[1].

ONS chief economist Grant Fitzner said September's notable increase meant inflation was at its highest rate in almost a year, driven not only by fuel prices but also by rising prices for airfares, computer games and live events^[2]. Capital Economics now expects the main measure of inflation to peak at 4.2% next year^[1].

While food price inflation remained at 1.3%^[3], other measures of underlying inflation also increased. From airfares to computer game download prices, there are the first signs of stickier forms of price pressure and of higher inflation becoming more embedded, suggesting elevated price rises are not temporary^[1].

Interest Rate Implications

The Bank of England, which currently holds its base interest rate at 3.75%^[3], carefully watches services inflation and core inflation when deciding whether to increase, lower or hold rates. The services sector, which includes everything from law and banking to retail, hospitality and tourism, makes up the vast majority of the UK's economic output^[1].

The latest inflation figures significantly increase the odds for a rise in interest rates next month, according to BBC analysis^[1]. Higher borrowing costs risk harming the economy, as homeowners face higher mortgage repayments and businesses borrow less, making them less likely to create jobs and potentially leading to staff cuts and reduced investment^[3].

UK borrowing costs have risen alongside most of the advanced world as the US-Israel war against Iran has intensified^[1].

UK Company Register Context

Across the UK company register, CompanyPulse data shows 148,468 companies are currently in liquidation, with a further 48,189 in administration, 35,760 in voluntary arrangement, and 591 in receivership^[4]. These figures represent the state of the entire 6.96 million company register, of which 5.42 million companies are active^[4].

The register recorded 13,493 new incorporations in the seven days to 22 October 2026^[4]. Daily incorporation counts for October show considerable variation, ranging from 113 companies on 22 October to 3,540 companies on 30 September^[4].

The largest sectors by company count on the UK register are other letting and operating of own or leased real estate (448,422 companies), buying and selling of own real estate (276,559 companies), and management consultancy activities other than financial management (276,291 companies)^[4]. Other significant sectors include other business support service activities (217,861 companies), retail sale via mail order houses or via Internet (210,424 companies), and information technology consultancy activities (166,741 companies)^[4].

Policy and Outlook

The September inflation figure will determine how benefits increase next April. By law, benefits such as personal independence payment (PIP) and carer's allowance must rise in line with September's consumer price index (CPI) measure of inflation^[2]. The figure also confirms that the Triple Lock will see the State Pension increase by 3.9% next April^[1].

Chancellor Healey has promised a Budget which will keep to Labour's commitment not to hike the three main taxes - income tax, National Insurance and VAT - while sticking to the party's fiscal rules^[2]. With a week to go until he delivers the Budget, Healey said the government knows that price rises from conflicts in the Middle East and Europe are hitting Britain and countries worldwide^[2].

While higher inflation at a time of frozen tax thresholds will raise more tax in cash terms, it will also increase the cost of public services, including likely union pay demands^[1]. The chancellor was on an early flight to North East Scotland on 21 October 2026 to announce new North Sea energy approvals, seen as the start of a run of pro-growth pre-Budget announcements^[1].

Inflation is widely expected to rise again in the coming months^[3], presenting ongoing challenges for businesses and consumers navigating cost pressures ahead of and following the Budget statement.