The Office of National Statistics (ONS) has revealed the rate of inflation has stayed at 6.7%. However, questions around the Bank of England’s next move remain uncertain.
This morning all eyes were on the ONS as they announced that unexpectedly, UK inflation rates remained steady in September at 6.7% – the same figure announced in August. The reason rates have stayed the same is soaring fuel costs have contributed to the first monthly fall in food prices for two years in a bid to ease pressures on households.
The outcome of rates remaining unchanged has raised questions over the Bank of England’s next decision on interest rates in November. City economists had forecast a modest fall to 6.6%.
Zooming in on the data, the ONS found food and non-alcoholic drink prices fell by 0.2% on the month – the first monthly decline since September 2021 – which, was helped by supermarkets battling each other to offer the best prices for dairy products such as milk, cheese, and eggs.
However, prices still remain significantly higher than a year ago, with the cost of an average food shop still up by more than 12% on an annual basis. Further highlighting the pressure on families and households across the country, the ONS said a sharp rise in fuel prices contributed to the pressure on inflation rates, amid a significant increase in global oil costs over the past few months.
Keeping in high spirits, chancellor 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.’
Although, other organisations don’t have the same outlook. Alfie Stirling, chief economist at the Joseph Rowntree Foundation, said: ‘The September inflation rate of 6.7% published today is the one government is expected to use to uprate benefits next April. For ministers to cast doubt on whether they will deliver this uprating in full is unacceptable. Millions of families need the certainty that benefit payments will begin to recover some of the significant real terms losses suffered over the past two years, and they need that certainty now.
‘As families continue to struggle with rapidly rising prices, this crisis is also evolving in new and dangerous ways. Not only are people now struggling to cope with the direct impacts of higher interest rates themselves, as credit cards, overdrafts and bank loans all become more expensive, but the wider economic slowdown in the jobs market is beginning to bite.
‘The latest data suggests unemployment has risen faster in the past two months than the Bank of England had predicted for the entire coming year, with workers in typically lower paying and less secure sectors at greatest risk.’
‘The government is treating our vital income support system, and the millions of lives it affects, as a political football,’ said Alfie. ‘This is yet another reason why we need an Essentials Guarantee, where we move to a protected minimum level of support across all benefits that guarantees everyone, at the very least, can afford the basic essentials.’
In addition, Daniele Antonucci, chief investment officer at Quintet Private Bank, admitted that on face value this news seems like a good thing, but officials are failing to consider the affects the cost-of-living crisis has had on people over the past two years.
‘UK inflation surprised to the upside, with the headline measure coming in unchanged versus the previous month and core down a notch, but still exceeding expectations,’ said Daniele. ‘Taken at face value, these numbers keep the pressure on the Bank of England to continue raising interest rates a while longer.’
She added: ‘That said, it’s also becoming more evident that the economy is slowing. We expect a mild recession to unfold over the coming months. These two dynamics, slowly declining inflation but still above target and weakening economic activity, suggest that we’re close to the peak in interest rates.
‘These two dynamics, slowly declining inflation but still above target and weakening economic activity, suggest that we’re close to the peak in interest rates. But, as the inflation battle isn’t won yet, even when rates do peak, we think central banks will keep them elevated for some time to ensure there’s no inflation resurgence.’
Images: stevepb and Joachim Schnürle
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