UK inflation rises to 3.5% in September, above forecasts, as fuel prices climb
In short
UK consumer prices rose 3.5% in the year to September, up from 3.1% in August and above the 3.4% most economists expected, the Office for National Statistics said. Motor fuels were up 30% over the year. Economists expect the Bank of England to raise rates at its Nov. 5 meeting.
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Inflation in the U.K. rose to 3.5% in the year to September, up from 3.1% in August, the Office for National Statistics said on Wednesday. AP reported it was the highest reading since October last year and above the 3.4% most economists had expected. The rate is further above the Bank of England's 2% target. [ 1 , 5 , 6 ]
Prices across the transport industry were the biggest contributor to higher inflation, particularly at the pump. Motor fuels rose 30% in the year to September, after a 23% annual rise in August. AP attributed the rise in fuel costs to the Iran war and the ensuing bottlenecks in the Strait of Hormuz, which it said have squeezed global oil and gas supplies. [ 5 , 6 ]
AP said the data cemented market expectations that the Bank of England will raise interest rates at its next meeting on Nov. 5. Last month the bank held its main rate at 3.75% but gave a big hint it was ready to hike soon. Most economists expect an increase to 4%. AP also said the U.S. Federal Reserve and the European Central Bank have raised rates recently. Reuters reported that the pound gained against the dollar and the euro as the data cemented rate hike bets. [ 4 , 5 , 6 ]
Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, said: "With inflation increasing, the pieces are falling firmly into place for a November rate rise." In a note, he said rising inflation was turning the Autumn Budget into "a perilous high-wire act for the Chancellor", increasing pressure for cost-of-living support while pushing up government borrowing costs. [ 2 , 5 ]
Chancellor John Healey is due to present his budget next week. In a statement after the data release he said he would be "maintaining our fiscal discipline" while working to give businesses and families "some breathing space". CNBC reported that separate data published the same day estimated UK national debt had exceeded £3 trillion ($4 trillion) in September for the first time. [ 2 , 5 , 6 ]
AP noted that UK interest rates had been trending down from a 15-year high of 5.25% until the U.S. and Israel attacked Iran in late February. [ 5 , 6 ]
Why it matters
Outlets say the figures strengthen expectations of a Bank of England rate rise next month and add pressure on Chancellor John Healey ahead of next week's budget. Reuters reported the pound gained against the dollar and the euro after the data.
Key facts
- Consumer prices rose 3.5% in the year to September, up from 3.1% in August, the Office for National Statistics said. [ 1 , 2 , 5 , 6 ]
- Most economists had expected 3.4%; the 3.5% reading is the highest since October last year. [ 5 , 6 ]
- Transport prices were the biggest contributor, and motor fuels rose 30% in the year to September, up from 23% in August. [ 5 , 6 ]
- AP linked rising fuel costs to the Iran war and bottlenecks in the Strait of Hormuz. [ 5 , 6 ]
- The Bank of England held its main rate at 3.75% last month; most economists expect a rise to 4% at the Nov. 5 meeting. [ 5 , 6 ]
- Healey said his budget next week would give businesses and families "some breathing space". [ 2 , 5 , 6 ]
- Reuters reported the pound gained against the dollar and the euro after the data. [ 4 ]
Confirmed by several sources
- UK inflation was 3.5% in the year to September, higher than expected. [ 1 , 2 , 5 , 6 ]
- Markets and economists expect the Bank of England to raise interest rates in November. [ 2 , 4 , 5 , 6 ]
- Chancellor John Healey said his budget next week would aim to give businesses and families some breathing space. [ 2 , 5 , 6 ]
Still unclear
- UK national debt was estimated to have exceeded £3 trillion in September for the first time. Only CNBC reports this figure, from separate data it says was published the same day.
- Whether the Bank of England will raise its rate to 4% on Nov. 5. This is an economists' expectation reported by AP; the bank has not announced a decision.
What local media are saying
Timeline, local time
- Reuters published its report on UK inflation rising more than expected to 3.5% in September. [ 1 ]
- CNBC reported that inflation had jumped to 3.5%, cementing rate hike expectations. [ 2 ]
- Reuters reported the pound gaining against the dollar and euro after the data. [ 4 ]
- AP reported inflation at its highest rate in almost a year, citing the Office for National Statistics. [ 5 ]