UK inflation has risen to its highest rate in almost a year as surging petrol and diesel prices pushed up the cost of living, new figures show providing a gloomy backdrop to John Healey’s first Budget as chancellor next week, reports BritPanorama.
Experts have warned that inflation is expected to increase further, potentially reaching 4 per cent, which could prompt the Bank of England to raise interest rates next month and again in February.
The Office for National Statistics (ONS) reported that the rate of Consumer Price Index (CPI) inflation stood at 3.5 per cent in September, a rise from 3.1 per cent in August.
This figure marks the highest CPI rate since October last year when it was 3.6 per cent, exceeding the expectations of economists who had anticipated a rate of 3.4 per cent.
Transportation costs were the biggest contributor to the inflation rise, especially at the fuel pump. Overall, motor fuels surged by 30 per cent year-on-year, compared to a 23 per cent rise in August, ONS data indicated.
Between August and September, average petrol prices increased by 8.2 pence to reach 169.5 pence per litre, the highest price recorded in around four years. Diesel also rose by 10.7 pence, hitting 192.5 pence, the highest since July 2022. According to RAC figures, average diesel prices now exceed 200 pence per litre for the first time in history, largely due to global supply constraints exacerbated by the ongoing conflict in Iran.
ONS chief economist Grant Fitzner commented, “Inflation climbed notably in September to its highest annual rate in almost a year. Increased fuel prices were again the main driver, with the cost of diesel the highest since July 2022. Other upward pressures included airfares and, to a lesser extent, computer games and live events, which are often volatile.”
He added that these increases were partially offset by lower hotel costs compared to last year. The annual cost of both raw materials and goods leaving factories continued to rise, driven by higher crude oil and petrol prices, respectively.
In response to the inflation figures, Chancellor John Healey acknowledged that rising prices due to conflicts in the Middle East and Europe are impacting the UK and other countries. He announced that the Government’s recent decision to commence drilling in the Jackdaw gas field in the North Sea is an investment “in our clean energy future and supporting British workers.”
“In my Budget next week, I will keep up this momentum,” he stated, emphasizing the need for fiscal discipline while providing relief to businesses and families.
Experts suggest the latest inflation figures may increase pressure on Healey to introduce new cost-of-living support measures during his autumn Budget statement. James Smith, economist at ING, suggested inflation could reach around 4 per cent this winter, which is likely to compel the Bank to hike rates in both November and February. Although he indicated that inflation should decline after spring, he described the current inflation surge as one driven predominantly by energy costs.
Suren Thiru, chief economist at the Institute of Chartered Accountants England and Wales (ICAEW), remarked that rising inflation is amplifying financial pressures on households and businesses. Thiru noted, “Rising inflation is turning the Budget into a perilous high-wire act for the Chancellor, increasing pressure for cost-of-living support while pushing up Government borrowing costs.”
These developments signal potential implications for mortgage holders and borrowers facing rising interest rates. Martin Sartorius, lead economist for the Confederation of British Industry (CBI), emphasized that the September inflation increase puts an interest rate hike firmly on the table at the Bank of England’s next meeting.
Most economists predict inflation will continue to rise in the coming months, particularly with the increase in Ofgem’s energy price cap coming into effect at the start of October, which will likely lead to higher costs for household energy bills during the winter.
Furthermore, the September inflation rate is pivotal for determining the increase levels for various benefits and state pensions due in April. The Consumer Price Index, including Housing (CPIH), rose to 3.6 per cent in September, while the Retail Prices Index (RPI) inflation climbed to 3.9 per cent, up from 3.4 per cent in August.
As the economic landscape shifts, the ramifications of these inflation figures will likely evolve, influencing decisions across government and financial institutions.
