UK inflation rises to 22-month high in September
Inflation rose to 1% in September, the highest level in almost two years, as the collapse in the pound since the vote to leave the EU began to push up the cost of imports.
Weaker sterling has sent the cost of petrol higher, along with other items mainly brought in from abroad, such as clothing and footwear.
The Office for National Statistics played down the impact of the falling pound on the annual inflation rate, saying there was no “explicit evidence” that it was having a significant impact on consumer prices.
But according to City analysts, the higher than expected rise in the cost of living indicated that the pound’s recent slump was increasing the price of imported goods. A rise in annual inflation to 0.9%, up from 0.6% the previous month, had been the consensus among analysts. Shoppers should be braced for higher prices over the coming months, they warned.
Andrew Sentance, a former member of the Bank of England’s monetary policy committee, which sets interest rates, said: “Higher import prices are feeding through to consumers because of the fall in sterling since the EU referendum.
“This latest rise, however, is just the tip of the inflationary iceberg that is coming our way.”
James Knightley, a senior UK economist at ING, said inflation could reach 3% next year, squeezing household disposable incomes and slowing growth.
The increase in the cost of living was widely forecast after an 18% fall in the value of sterling since the Brexit vote on 23 June.
Last week, the Bank of England governor, Mark Carney, said the Bank could tolerate “a bit” of an overshoot against its 2% inflation target to help economic growth and employment.
The Bank forecast in August that inflation would reach 2% in about a year and stay high for the next couple of years.
The impact of the plunge in the pound was highlighted last week when Tesco became embroiled in a row with Unilever over price hikes for products including Marmite. Unilever had attempted to impose a 10% price rise because of sterling’s fall.
