UK inflation rate highest since November 2014

The latest data from the Office for National Statistics has shown the UK’s inflation rate to be at its highest in almost two years this September.

UK inflation rate highest since Nov 2014
The UK's inflation rate rose to its highest level in almost two years in September, official data from the Office for National Statistics showed on Tuesday.The Consumer Price Index (CPI) jumped from 0.6 per cent in August to a higher-than-expected one per cent last month on the back of more expensive clothes, fuel, restaurants and hotels, the ONS said.

Highest CPI inflation for two years

However, the ONS said there were no clear signs yet that the tumbling value of sterling was feeding through into inflation. Mike Prestwood, head of inflation at the ONS, said, "CPI inflation has risen to its highest for nearly two years, though it remains low by historic standards."The prices paid by manufacturers for raw materials were unchanged over the month and there is no explicit evidence the lower pound is pushing up the prices of everyday consumer goods."The ONS said the "relatively large" increase of 5.5 per cent in clothing prices in September was in line with seasonal trends and not triggered by the drop in the value of the pound following the EU referendum result.Economists have predicted that prices will rise further – potentially above the Bank of England's two per cent target next year – when the fall in the value of sterling makes food, fuel and clothing more expensive.

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Howard Archer, chief economist at IHS Global Insight, said, "Consumer price inflation was actually prevented from climbing higher still in September by a dip in food prices, but that looks certain to imminently come to an abrupt end and turn around as a factor." 

Bad news for savers

Ben Brettell, senior economist at Hargreaves Lansdown, said, "Inflation looks certain to rise further over the coming months, and could easily exceed the two per cent target in 2017. This will undoubtedly be tough on those with low incomes, and it's also not good news for savers who are losing money in real terms."Richard Lim, chief executive of the Retail Economics consultancy, said the data gave the first real sense of a Brexit impact on household budgets. "The cost of living is rising at the fastest pace in two years as the impact of falling energy prices fade and weaker sterling begins to feed through the supply chain," he said, adding that he expected inflation to rise to three per cent next year.Tom Stevenson, director for personal investing at Fidelity International, said future rises in the CPI would also spell troubles for savers."While the Bank of England governor Mark Carney may have said that he is willing to tolerate inflation overshooting for the next year or so, savers are less likely to be so accommodating. Anyone with their savings still sitting in cash will struggle to generate real returns in this ultra-low interest rate and rising inflation environment," he said.

Too soon to notice impact of sterling depreciation

Anna Leach, head of economic analysis and surveys at the Confederation of British Industry, said, “Inflation was expected to pick up through this year as fuel prices are no longer falling. It’s still too soon for sterling’s recent depreciation to affect today’s inflation figures, however we do expect it to push up prices through the course of next year, which will hit the pound in people’s pockets.“It is unlikely that today’s inflation rise will faze the Bank of England, who we still expect to cut the base rate in November, to support confidence and spending in the short-term.”

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