Yahoo Finance UK inflation unchanged at 6.7% but key data suggest BoE may hold interest rates
UK inflation remained unchanged at 6.7% in September, according to the Office for National Statistics. Data published on Wednesday show falls in food and drink prices were cancelled out by a rise in fuel and hotel accommodation costs.
However, there was a slight drop in 'core' inflation to 6.1%, from 6.2% in August, suggesting the Bank of England (BoE) may decide to hold interest rates in their November meeting. Core inflation data strips out volatile items, such as food and energy, where prices fluctuate frequently. The Bank's Monetary Policy Committee considers core inflation, alongside the consumer prices index, when deciding on interest rates.
The BoE left the rates unchanged at 5.25% in its last meeting on 21 September after 14 consecutive rises.
“After last month’s fall, annual inflation was unchanged in September. Food and non-alcoholic drinks prices eased again across a range of items with the cost of household appliances and airfares also falling this month. These were offset by rising prices for motor fuels and the cost of hotel stays," said ONS chief economist Grant Fitzner.
ONS data shows the consumer prices index (CPI) rose by 6.7% in the 12 months to September 2023, the same rate as in August.
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The CPI, including owner occupiers' housing costs (CPIH), rose by 6.3% in the 12 months to September 2023, the same rate as in August.
The largest downward contributions to the monthly change in both CPIH and CPI annual rates came from food and non-alcoholic beverages, where prices fell on the month for the first time since September 2021, and furniture and household goods, where prices rose by less than a year ago.
Rising prices for motor fuel made the largest upward contribution to the change in the annual rates.
Chancellor of the exchequer Jeremy 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."
At 6.7%, UK has the highest inflation rate of any G7 country. This compares with 3.7% inflation rate for September in the US, 3.8% in Canada, 4.9% in France, 4.5% in Germany, 5.3% in Italy, and 3.2% in Japan (for August).
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Unions have warned the UK is still teetering on the brink of a recession. "Bills and prices are still going up – just a bit more slowly than they were a year ago. While other countries have acted decisively to reduce cost of living pressures, working families and businesses here remain seriously under the cosh," said TUC general secretary Paul Nowak.
Sarah Coles, columnist for Yahoo Finance and head of personal finance at Hargreaves Lansdown said inflation remains sticky. "Petrol and diesel are the canaries in the coalmine, and as higher oil prices make their way through supply chains, it could mean inflation is hard to shift," Coles said.
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She said stubborn inflation isn’t necessarily a sign we’re set for a rate hike, but it may well mean rates stay higher for longer, and if we get more signs that pressure on prices isn’t easing, it will strengthen the argument around the table that one more hike might be needed.
"For those coming to the end of a fixed rate deal and looking to remortgage, these figures won’t bring any confidence that mortgage rates will drop quickly from here."
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