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UK Inflation Hits 5-Year High

The Consumer Price Index rose from 2.9% in August to 3% last month, exceeding UK inflation targets

James Gard 17 October, 2017 | 10:14AM

Bank of England Governor Mark Carney

UK inflation hit a five-year high of 3% in September after a combination of rising food and transport costs pushed up the cost of living.

The Consumer Price Index (CPI) rose from 2.9% in August to 3% last month, while the Retail Price Index (RPI) dipped to 3.9%, from 4% the previous month – according to the Office for National Statistics (ONS).

This week’s inflation data will be watched by the Bank of England ahead of its interest-rate setting meeting on November 2. The Bank’s Governor, Mark Carney, will now have to write a letter to the Chancellor, Philip Hammond, explaining why inflation is one percentage point above the 2% inflation target.

The Bank has been preparing consumers and the City for the prospect of the first rate rise since 2007, when the base rate was increased to 5.75%.

Nevertheless, some commentators believe that a rate rise is not yet a “done deal”.

Viktor Nossek, director of Research at WisdomTree in Europe, said:

“With so many areas of weakness in the economy, and high levels of indebtedness, a rate rise could be a step too far for the Bank of England, at least until there is more clarity on Brexit.

“The deciding factor could be the pound, but even here the outlook has become more benign, with the currency appreciating substantially off lows and acting as a dampener on inflation.”

Today’s figures also have an impact on the nation’s personal finances, ahead of next month’s Budget, which is expected to lower stamp duty for first-time buyers.

Maike Currie, investment director for Personal Investing at Fidelity International, said:

“September’s inflation figure matters hugely to both retirees and savers. Under the government’s ‘triple lock’ guarantee, the state pension will rise in April each year by whichever number is the highest out of the September CPI inflation number, average earnings or 2.5%.

"With inflation running higher than either wages or 2.5%, this will determine the rise in the State Pension next year, arguably making retirees the biggest winners from today’s inflation figure.”

 

 

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About Author

James Gard  is subeditor for Morningstar.co.uk