The UK Chancellor of the Exchequer Jeremy Hunt is optimistic that inflation would ease.
UK inflation came in for September at 6.7%, higher than expectations set by analysts. Also, inflation in the UK remained unchanged from August.
While inflation remained unaltered, the UK’s headline consumer price index (CPI) met expectations from economists polled by Reuters. The economists predicted a monthly increase of 0.5% and an annual 6.6%. For core CPI, the UK’s figure fell to 6.1% year-on-year (YoY), higher than the 6% expected but lower than the 6.2% in August. Core CPI excludes the prices of food, energy, alcohol, and tobacco.
UK Inflation and Interest Rates in September and Before
The UK’s general CPI, which came down to 6.7%, was below expectations, which likely encouraged the Bank of England (BoE) to suspend hiking interest rates. The apex bank has increased interest rates 14 consecutive times since December 2021 to fight rising inflation. The rate moved from 0.1% at the time to the 5.25% in August.
The Office for National Statistics (ONS) stated that the prices of food and non-alcoholic drinks in the UK fell by 0.2% in September. This resulted from heavy competition among supermarkets, which eventually tanked the prices of items like eggs, cheese, milk, juices, soft drinks, and mineral water. However, although the prices are lower than in August, they are still more than 12% higher than recorded in the same period last year.
Fuel Prices Contributed to Inflation
According to the ONS, an increase in diesel and petrol prices is a major reason for the pressure on the UK’s inflation. The price of diesel climbed at one of the fastest rates in the UK in 20 years. According to the RAC, a major automobile breakdown service provider, Diesel prices hit 163p a liter in September. Rising more than 8p, this is the fifth largest monthly rise since 2000. The price of petrol also climbed, rising by 4.5p to 152p a liter, the fourth consecutive monthly climb.
The rise in petrol and diesel prices comes as Saudi Arabia and Russia cut down on oil production to boost prices. This eventually pushed prices to about $100 (£82.89) per barrel. Combined with a fall in the value of the pound, prices increased at the pump. Nonetheless, the RAC believes that petrol is overpriced by nearly 7p a liter.
The UK Is Optimistic
The UK Chancellor of the Exchequer Jeremy Hunt is optimistic that inflation would ease. In a recent statement, Hunt said:
“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.”
Traders generally believe that the BoE will suspend further interest rate hikes. Also, reports suggest that the market has priced a 77% chance that the apex bank will leave rates unchanged at its November meeting. However, the BoE Governor Andrew Bailey recently warned that calling victory in the fight against inflation may be too soon.