Following the release of the latest Guernsey Quarterly Inflation Bulletin, which showed that Guernsey’s inflation rate fell to 3.3% at the end of September 2025, Richard Hemans, IoD Guernsey’s lead on economics, commented:
“Guernsey’s inflation continues to decline, falling from 3.9% in June to 3.3% in September 2025. This is the lowest level since early 2021 and a significant improvement from 5.1% in September 2024. It also compares favourably with the UK, where RPI was 4.5% in September, and shows that the gap with Jersey is narrowing as their inflation rate rose for the second consecutive quarter from 2.6% to 2.8%.
The closing gap is encouraging, with Guernsey’s inflation moderating steadily while Jersey’s has edged higher, narrowing the difference between the islands to just half a percentage point. Jersey’s increase was driven by higher prices in leisure services, motoring, fares and fuel and light, while housing costs there continued to fall. In contrast, housing costs in Guernsey are still rising but at a slower pace, and the figures are only now beginning to reflect more fully the impact of lower mortgage interest rates.
Although the annual rate is falling, the quarterly change remained positive at 0.7%, showing that prices continue to rise. This suggests that while overall conditions are improving, domestic cost pressures, particularly in housing, utilities and household services, remain persistent.
The main contributors to inflation were housing, household services, food, and personal services. Housing rose 5.1% year-on-year, contributing around one percentage point to overall inflation, while household services increased by 4.8%, food by 4.2%, and personal services by 5.1%. Electricity prices also rose sharply, by 9% in the quarter, adding further pressure to the fuel and light category.
Three of the fourteen categories experienced annual price falls, all of which were goods categories, showing that most remaining inflation is being generated domestically. Goods inflation was 0.8% and services inflation 2.5%, compared with 1.0% and 2.9% respectively in the previous quarter. Core inflation (excluding food and energy) was 2.6%, down from 3.2% in June, indicating that underlying inflationary pressure continues to ease.
The States’ forecast of around 3.1% by the end of 2025 and 2.9% in early 2026 appears reasonable, but inflation at that level would still be too high and damaging. Persistent inflation erodes real incomes, particularly for lower-income households, weakens savings, and reduces business confidence.
Several factors continue to drive local inflation. The housing shortage remains the most significant, pushing up rents and house prices. A tight labour market and limited competition in key service sectors are also sustaining cost pressures. The island’s fiscal deficit is another factor, and by spending more than it raises in taxation, the States are adding demand to an already supply-constrained economy, which can keep inflation higher than it would otherwise be.
Although Guernsey cannot set its own interest rates, the UK’s current rates are probably tighter than necessary for Guernsey, given that our inflation rate is already lower. Domestic policy therefore has an important role to play. Reducing the fiscal deficit, accelerating housing development, improving competition policy and regulation, raising productivity and pursuing targeted immigration to relieve skill shortages would all help to ease inflation further over time.
Inflation is moving in the right direction, and the gap with Jersey is closing. Continued progress will depend on maintaining fiscal discipline, increasing housing supply and tackling structural constraints that have kept domestic costs high.”