UK inflation reached 3.1% in August as energy costs spiked, prompting Prime Minister Andy Burnham to warn of a challenging October Budget amid global economic volatility.
Brent crude price rose 18% in September to over $107 a barrel due to the Iran war, driving up inflation.
Sterling dropped 0.1% against the dollar to $1.345 as traders bet the BoE is unlikely to raise rates.
FTSE 250 closed up 1.15% at 24,091.82.
S&P 500 rose 0.3% to 7,605.47 ahead of the Fed decision.
Nasdaq Composite gained 0.5% to 26,101.18.
10-year gilt yield sat at 5.3%, slightly lower for the day, amid a global bond selloff.
UK inflation climbed to a five-month high of 3.1% in August, driven by an 18% surge in Brent crude prices linked to the Iran conflict. Prime Minister Andy Burnham signaled a difficult October Budget, emphasizing fiscal prudence while aiming to protect living standards. Meanwhile, markets remain focused on the Federal Reserve's expected interest rate hike.
The government faces fiscal pressure from rising energy costs and inflation linked to the conflict in Iran, which has eroded public finance headroom by an estimated £11bn.
US markets rallied ahead of the Federal Reserve decision, while the FTSE 250 closed up 1.15% and the pound faced downward pressure against the dollar.