UK Inflation Dip Unlikely to Deter Bank of England From Rate Hike

Consumer prices rose 3.1% in annual terms in September, easing back from 3.2% in August, the Office for National Statistics (ONS) said.

A Reuters poll of economists had pointed to inflation of 3.2% in September although 11 of the 34 analysts who took part predicted a slowdown.

Overall, the figures did little to change expectations that the BoE will become the first of the world’s major central banks to raise rates, with investors increasingly betting it will do so on Nov. 4 after its next policy meeting.

Yael  Selfin, KPMG UK’s chief economist, said despite the slight slowdown in inflation it had topped 3% for two months in a row, hurting the spending power of households some of whom could also face higher mortgage costs if BoE hikes rates.

“We expect further increases in inflation from October, which could reach around 4% by the end of the year, with the recent rise in wholesale energy prices passed on to households,” Selfin said.

Hospitality was the largest drag on inflation last month – the result of the “Eat Out to Help Out” restaurant meal subsidy scheme launched in August 2020 dropping out of the annual comparisons. Prices for diners rose sharply in September last year after the scheme expired.

But prices for most other consumer goods and services continued to rise, while food prices fell more slowly than in September last year.

Prices of goods produced by factories rose again, led by a jump for metals and machinery as well as surging energy prices.

“Road freight costs for UK businesses also continued to rise across the summer,” ONS statistician Mike Hardie said.

Last month the BoE said it expected inflation to rise slightly above 4% in the last quarter of 2021 but since then energy prices have continued to rise sharply.

On Sunday, BoE Governor Andrew Bailey sent a latest signal that the British central bank was gearing up to raise rates for the first time since the onset of the coronavirus crisis as the risks from inflation mounted.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Andy BruceEditing by William Schomberg)