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UK inflation at highest since April 2012 | UK inflation at highest since April 2012 |
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The UK's key inflation rate hit its highest for more than five years in September, driven up by increases in transport and food prices. | The UK's key inflation rate hit its highest for more than five years in September, driven up by increases in transport and food prices. |
The Consumer Prices Index (CPI) climbed to 3%, a level it last reached in April 2012, and up from 2.9% in August. | The Consumer Prices Index (CPI) climbed to 3%, a level it last reached in April 2012, and up from 2.9% in August. |
The pick-up in inflation raises the likelihood of an increase in interest rates next month. | The pick-up in inflation raises the likelihood of an increase in interest rates next month. |
The figures are significant because state pension payments from April 2018 will rise in line with September's CPI. | The figures are significant because state pension payments from April 2018 will rise in line with September's CPI. |
Under the "triple lock" guarantee, the basic state pension rises by a rate equal to September's CPI rate, earnings growth or 2.5%, whichever is the greatest. | Under the "triple lock" guarantee, the basic state pension rises by a rate equal to September's CPI rate, earnings growth or 2.5%, whichever is the greatest. |
At the moment, the full new state pension is £159.55 per week, equivalent to £8,296.60 per year. | At the moment, the full new state pension is £159.55 per week, equivalent to £8,296.60 per year. |
Business rates will go up by September's Retail Prices Index (RPI) of 3.9%. | Business rates will go up by September's Retail Prices Index (RPI) of 3.9%. |
The fall in the pound since last year's Brexit vote has been one factor behind the rise in the inflation rate, as the cost of imported goods has risen. | The fall in the pound since last year's Brexit vote has been one factor behind the rise in the inflation rate, as the cost of imported goods has risen. |
ONS head of inflation Mike Prestwood said: "Food prices and a range of transport costs helped to push up inflation in September. These effects were partly offset by clothing prices that rose less strongly than this time last year." | ONS head of inflation Mike Prestwood said: "Food prices and a range of transport costs helped to push up inflation in September. These effects were partly offset by clothing prices that rose less strongly than this time last year." |
Analysis: Kamal Ahmed, economics editor | Analysis: Kamal Ahmed, economics editor |
Inflation has hit a five year high and is now 0.9% above the rate of wage growth - meaning that the incomes squeeze is becoming tighter. | Inflation has hit a five year high and is now 0.9% above the rate of wage growth - meaning that the incomes squeeze is becoming tighter. |
And if you are employed in the public sector - where pay rises are capped at 1% - or rely on benefits - which are frozen - that squeeze is even tighter. | And if you are employed in the public sector - where pay rises are capped at 1% - or rely on benefits - which are frozen - that squeeze is even tighter. |
With poor economic growth figures and uncertainty over the Brexit process, the Bank of England's decision on whether to raise interest rates next month is finely balanced. | With poor economic growth figures and uncertainty over the Brexit process, the Bank of England's decision on whether to raise interest rates next month is finely balanced. |
Yes, "price stability" is the main purpose of the Bank of England's monetary policy committee which makes the decision. | Yes, "price stability" is the main purpose of the Bank of England's monetary policy committee which makes the decision. |
But many believe that inflation may now have peaked as the effects of sterling's depreciation following the referendum dissipate. | But many believe that inflation may now have peaked as the effects of sterling's depreciation following the referendum dissipate. |
An interest rate rise now, which increases prices for millions of mortgage holders and could dampen economic activity, could be just the medicine the economy doesn't need. | An interest rate rise now, which increases prices for millions of mortgage holders and could dampen economic activity, could be just the medicine the economy doesn't need. |
Rate rise 'risk' | Rate rise 'risk' |
The Bank of England is tasked with keeping CPI inflation at 2%, and last month its governor, Mark Carney, indicated interest rates could rise in the "relatively near term" if the economy continued on its current path. | The Bank of England is tasked with keeping CPI inflation at 2%, and last month its governor, Mark Carney, indicated interest rates could rise in the "relatively near term" if the economy continued on its current path. |
The governor of the Bank of England has to write a letter of explanation to the chancellor if the inflation rate is more than 1% either side of the 2% target. | The governor of the Bank of England has to write a letter of explanation to the chancellor if the inflation rate is more than 1% either side of the 2% target. |
On Tuesday, Mr Carney told MPs on the Treasury Committee that "inflation rising potentially above the 3% level in the coming months is something we have anticipated", because of the fall in the value of the pound. | |
He said he expected inflation to peak in October or November, and at that point he thought it would be "more likely than not that I would be writing on behalf of the Monetary Policy Committee (MPC) a letter to the chancellor." | He said he expected inflation to peak in October or November, and at that point he thought it would be "more likely than not that I would be writing on behalf of the Monetary Policy Committee (MPC) a letter to the chancellor." |
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "The tick upwards in inflation will increase expectations of a rate rise from the Bank of England later on this year, stoked by a flurry of hawkish rhetoric coming from Threadneedle Street." | Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "The tick upwards in inflation will increase expectations of a rate rise from the Bank of England later on this year, stoked by a flurry of hawkish rhetoric coming from Threadneedle Street." |
However, he added, it is not a foregone conclusion, "so it's probably best not to count those chickens until they're hatched". | However, he added, it is not a foregone conclusion, "so it's probably best not to count those chickens until they're hatched". |
Suren Thiru, head of economics at the British Chambers of Commerce, said the organisation expected inflation to peak "shortly, before easing back in 2018 as the impact of the post-EU referendum slide in sterling drops out of the calculation". | Suren Thiru, head of economics at the British Chambers of Commerce, said the organisation expected inflation to peak "shortly, before easing back in 2018 as the impact of the post-EU referendum slide in sterling drops out of the calculation". |
As a result, he said the Bank of England's policymakers "should resist the temptation to raise interest rates, particularly during this period of heightened political uncertainty". | As a result, he said the Bank of England's policymakers "should resist the temptation to raise interest rates, particularly during this period of heightened political uncertainty". |
"Raising rates before the UK economy is ready risks undermining consumer and business confidence, weakening the UK growth prospects further," he said. | "Raising rates before the UK economy is ready risks undermining consumer and business confidence, weakening the UK growth prospects further," he said. |
Analysis: Brian Milligan, personal finance reporter | Analysis: Brian Milligan, personal finance reporter |
Pensioners will be celebrating again. Today's CPI inflation figure means they will get a 3% rise next April, their largest pension increase for six years. | Pensioners will be celebrating again. Today's CPI inflation figure means they will get a 3% rise next April, their largest pension increase for six years. |
Those on the new state pension will see their weekly income rise to £164. | Those on the new state pension will see their weekly income rise to £164. |
Compare that to workers, who've seen their earnings rise by 2.1% over the last year. | Compare that to workers, who've seen their earnings rise by 2.1% over the last year. |
This is all thanks to the triple lock, which sees the state pension rise by the highest of earnings, prices or 2.5%. | This is all thanks to the triple lock, which sees the state pension rise by the highest of earnings, prices or 2.5%. |
Food for thought for the chancellor, perhaps, who's reported to be considering tax concessions for younger people in his forthcoming budget, to even-up the inter-generational unfairness that the triple lock has contributed to. | Food for thought for the chancellor, perhaps, who's reported to be considering tax concessions for younger people in his forthcoming budget, to even-up the inter-generational unfairness that the triple lock has contributed to. |
The 2.5% element of the triple lock is due to be dropped in 2021. | The 2.5% element of the triple lock is due to be dropped in 2021. |