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The UK inflation rate held steady in September at 6.7 per cent, maintaining pressure on the Bank of England to stay firm in its efforts to curb price growth.
The rate of consumer price inflation had been forecast to fall to 6.6 per cent in the 12 months to September, according to economists polled by Reuters.
The core rate of inflation, which omits energy and food prices, eased to 6.1 per cent in the same period, down from 6.2 per cent in August but slightly higher than forecast by economists.
The figures underscore the battle still ahead for the UK central bank as it tries to squeeze high inflation out of the economy with elevated interest rates after annual consumer price growth surged to the highest levels since the 1980s.
On Wednesday morning, sterling rose 0.1 per cent against the dollar as markets bet that rates might stay higher for longer.
Andrew Bailey, the central bank’s governor, last week warned that it was too soon to declare victory in the fight against inflation, even as traders bet that the BoE was done lifting rates.
Officials have been signalling that an extended period of high rates may be needed to tame inflation and return it durably to the bank’s 2 per cent target.
The latest CPI figures showed price growth had been fuelled by factors including higher motor fuel prices and rates on hotel accommodation, offsetting downward contributions from food and beverage prices.
The all-services index of consumer prices rose by 6.9 per cent in the year ended September, up from 6.8 per cent. This will come as a disappointment to rate-setters, given the services component is closely watched by the central bank as a gauge of underlying domestic pricing pressures in the economy.
The BoE held interest rates at 5.25 per cent at its most recent meeting last month, in the first pause after 14 consecutive rate rises since the start of its tightening campaign in December 2021. It is next due to announce rates in early November.
While the new CPI figures were above economists’ forecasts, the headline reading is unlikely to tip the balance in favour of another rate increase, analysts said. The outlook is instead for a protracted period of unchanged rates.
The spectre of a widening conflict in the Middle East represents one of the key risk factors in the outlook, with the recent jump in oil and natural gas prices raising the prospect that inflation will be slower in subsiding.
The new headline reading leaves inflation on track to fall below 5.1 per cent by December, in line with pledges from the government, said Paul Dales, an economist at Capital Economics.
“The new risk, though, is that events in the Middle East restrain how far inflation falls next year,” he added. “Together with a more gradual easing in core inflation and wage growth, this adds support to our view that the bank won’t cut interest rates until late next year.”
Jeremy Hunt, the UK chancellor, 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.”
