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UK inflation hits near two-year high of 1% UK inflation hits near two-year high of 1%
(about 2 hours later)
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 drove up the cost of imports. 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.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 the falling pound on inflation, saying there was no “explicit evidence” that it was having a significant impact on consumer prices.
But according to City analysts, the faster than expected increase in the cost of living indicated that the pound’s recent slump was increasing the price of imported goods. A 0.9% rise, 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 interest rate setting monetary policy committee, 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.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.
The pound has tumbled amid concerns that the uncertainty created by negotiations to leave the EU would lead to slower growth next year. 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.
City analysts had expected inflation to rise to 0.9%, following a spike in food and clothing costs last month. In August, inflation remained the same at 0.6% as in July. 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 the fall in sterling. 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’sfall.
The EY Item Club warned at the weekend that rising costs will continue to hit consumer spending next year and in 2018, as an expected decline in business investment after the Brexit vote applies further downward pressure on economic growth.The EY Item Club warned at the weekend that rising costs will continue to hit consumer spending next year and in 2018, as an expected decline in business investment after the Brexit vote applies further downward pressure on economic growth.
But the Office for National Statistics noted that there was no “explicit evidence” that the pound’s decline was having a significant impact on consumer prices.
James Knightley, a senior UK economist at ING, said: “This trend will continue with sterling’s plunge significantly pushing up the price of imported products. Producer price inflation is running even faster at 1.2%, while input prices are rising [by] 7.2%. We look for headline consumer price inflation to push up to 3% next year.”