The annual inflation rate rose to 10.1% in September from 9.9% in the 12 months to August, the Office for National Statistics said on Wednesday. That Retraces to July’s recent high.
Rising food prices were the biggest contributor to the acceleration in inflation, which rose 14.6% year-on-year, the ONS said.
A return to double-digit inflation will be worrying for the Bank of England, which meets on November 3 to set interest rates. Governor Andrew Bailey has said a “stronger response” may be needed to deal with rising prices.
The central bank will assess rising price pressures against the government’s latest price pressures U-turns on unfunded tax cutsThis will help reduce inflation in the coming months.
“The new president’s dramatic reduction in fiscal support will be seen as reducing medium-term inflation, which is [Bank of England] Policymakers will be more interested,” James Smith, developed markets economist at Dutch bank ING, said in a note on Wednesday.
The bank now expects policymakers to raise interest rates by three-quarters of a percentage point next month, instead of a full percentage point. ING economists expect inflation to peak this month and begin to ease in 2023 as supply chain disruptions improve and consumer demand flags.
However, after Hunt said on Monday that energy prices are largely unknown, the government will only cap global prices until April. More targeted support after that could trigger a new spike in energy bills for many households, boosting inflation again in the spring.
Goldman Sachs warned that inflation would fall to 11.9% year-on-year in April from its current forecast of 7.1% and “will remain high throughout 2023” depending on what the government decides to do.
The rise in prices comes as wage growth continues to slow in Britain. Between June and August, average wages fell by 2.9% when inflation is taken into account, according to the ONS. This followed a 3% decline between April and June, the biggest drop in real wages since records began 20 years ago.
Meanwhile, the UK government is debating cuts to public spending to deal with its growing debt burden, heaping more pain on families at a difficult time.
Responding to the latest inflation figures, Hunt said the government would “prioritise support for the most vulnerable while driving broad economic stability and long-term growth that helps everyone”.
According to the ONS, price rises in September were partially offset by falls in the price of petrol and plane tickets. “While at historically high rates, the costs faced by businesses are starting to rise more slowly, and crude oil prices are actually falling in September,” said Darren Morgan, director of economic statistics.
Inflation is a growing headache for policymakers across Europe, who are grappling with an energy crisis following Russia’s invasion of Ukraine. Rising energy costs and rising food prices lifted the eurozone’s annual inflation rate to 9.9% in September, from 9.1% in August, Eurostat said on Wednesday.
— Julia Horowitz contributed to this report.