The rate of inflation stayed stuck at 6.7 per cent in September in a blow to the Bank of England’s efforts to bring it back down to its official target rate of 2 per cent, official figures showed on Wednesday.
City forecasters had expected the headline measure, the Consumers Prices Index (CPI) to drop to around 6.5 per cent when it was revealed today by the Office for National Statistics (ONS).
The stalled inflation rate ends a run of three consecutive falls in the rate of inflation and will be seen as a disappointing setback for the Bank which has increased interest rates 14 times to rein it in since December 2021.
ONS chief economist Grant Fitzner said:⯓After last month’s fall, annual inflation was unchanged in September. Food and non-alcoholic drinks prices eased again across a range of items with the cost of household appliances and airfares also falling this month.
“These were offset by rising prices for motor fuels and the cost of hotel stays.
“The annual rate of core inflation has slowed again this month, driven by a slowdown in the cost of many goods though services prices did rise a little this month.”
Oil prices jumped during September, keeping inflation at its elevated level. The cost of a barrel of Brent crude shot up $10 over the month to peak at $97. It has since dropped back to around $90.
The stalled inflation rates makes it slightly more likely that the Bank will increase interest rates from their current level of 5.25%, when its Monetary Policy Committee meets next month. Fears of higher interest rates sent London stocks down.
Jeremy Batstone-Carr, European Strategist, Raymond James Investment Services, said: “September’s upward trend can be attributed to an increase in fuel prices, which may yet be exacerbated by the escalating conflict in the Middle East. Underlying inflationary pressures have been steady throughout the year, but the back-to-school season and increased private school fees may have also contributed to September’s spike.
“However, despite today’s figures there are signs that inflation will continue to subside in the coming months. The slower increase in food prices will be a welcome relief to hard-pressed households, while the sharp fall in the OFGEM energy price cap will further reduce price pressures in October.
The CPI is now below the level of wages, which rose by 7.8% in the three months to September, according to ONS figures yesterday, meaning that most workers are getting better off. It is the first time in two years that wages have outstripped prices.
But speaking at the Institute of International Finance Annual Membership Meeting, in Morocco, last Friday, Bank of England Governor Andrew Bailey said that he “sees progress on inflation but there is still work left to do.”
Rishi Sunak pledged at the start of the year to halve inflation from its then rate of 10.7%.
Inflation peaked at 11.1% in October last year in the wake of the energy price spike caused by the Russian invasion of Ukraine.
Marcus Brookes, chief investment officer at Quilter Investorsm, said: “UK inflation’s march back down to target can very much be described as ‘slow and steady’, with CPI refusing to budge in September at 6.7%. Clearly the UK is not winning any races with this trajectory as inflation still remains incredibly elevated and much more so than peers. With geopolitical tensions rising, energy and petrol prices are once again on the way up and inflationary pressures risk hitting an economy that has gone through a painful cost of living crisis. For now, the higher for longer interest rate narrative will continue to persist.”
Chancellor Jeremy Hunt, said: “As we have seen across other G7 countries, inflation rarely falls in a straight line, but if we stick to our plan then we still expect it to keep falling this year. Today’s news just shows this is even more important so we can ease the pressure on families and businesses.”
