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The UK’s inflation rate remained at 6.7% in September, defying earlier predictions of a slight decrease. This rate is the highest among major advanced economies and sustains the possibility of a future rise in interest rates.
The data for September indicates an end to a sequence of falling inflation rates and fuels ongoing government and financial institution debates on how to manage high inflation.
A survey by Reuters had anticipated a minor decline in the inflation rate. Despite these predictions, two key measures monitored by the Bank of England (BoE) — core inflation and services prices — remained strong.
Core inflation, which excludes volatile commodities like energy and food, dropped to 6.1%, but this decrease was smaller than initially expected.
Chancellor Jeremy Hunt commented, “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.”
The Office for National Statistics (ONS) revealed that an increase in petrol and diesel prices negated any decreases in the cost of food and other household items. Yael Selfin, Chief Economist at KPMG UK, mentioned that energy prices have “re-emerged as an upside risk to inflation.”
Ian Stewart, Chief Economist at Deloitte, noted, “Progress in bringing inflation down is proving slow. The persistence of underlying inflation, and service price pressures, suggests that interest rates are likely to stay close to current levels for much of the next year.”
Financial markets reacted to the data by increasing the likelihood of another interest rate rise by the BoE, albeit not necessarily as soon as 2 November, when the central bank announces its next decision. Andrew Bailey, Governor of the BoE, had previously indicated that future votes on interest rate adjustments would be “tight.”
Morgan Stanley Economist Bruna Skarica said, “We expect the MPC to remain on hold this year, but to continue to push back against any rapid cuts.” She expects rate cuts to commence in May 2024 or slightly later.
Earlier this week, it was reported that wages outpaced inflation for the first time in nearly two years, alleviating some pressure on the BoE and hinting at a potential end to high inflation rates. Wages increased at an annual rate of 7.8% between June and August, according to the BBC.
This news comes as the UK faces the highest gas prices in Europe and a year-on-year inflation rate in September that surpassed those in France, Germany, and the EU as a whole.