UK inflation remains at 3.8% in September, easing food prices provide some relief as rate cut expectations shifts [image by mpamag.com]
(The Post News) – UK inflation was flat at 3.8% in September, contrary to the expectation of economists and the Bank of England (BoE) for a rise. This is the third consecutive month that inflation has been flat, reflecting that price pressures are unwinding more gradually than anticipated.
The increase in the price of transport, such as fuel and air fares, was balanced by decreases in food, non-alcoholic drinks, and recreation, such as live performances, the Office for National Statistics (ONS) stated.
Food Prices Drop for the First Time Since May 2024
Prices of food and non-alcoholic drinks decreased month-on-month for the first time in 16 months by 0.2%. Food annual inflation reduced to 4.5% in September from 5.1% in August.
Economists have attributed the fall to more discounting and promotional activity from retailers. But prices of staple products like red meat, chocolate, and coffee continue to rise as a result of supply chain issues and bad weather.
Against market expectations of a rate reduction, the BoE is forecasted by economists to keep the base rate at 4% in its November 6 policy meeting. Inflation being higher than the 2% target, policymakers are concerned.
“High inflation risks becoming embedded as poor productivity and sticky wage growth refuse to go away,” warned Schroders Senior Economist George Brown. “No rate cuts are anticipated until 2026.”
Chancellor Rachel Reeves Prepares Autumn Budget
Chancellor Rachel Reeves was not pleased with the figures, stating, “For too long, our economy has felt stuck. People are working harder but getting less in return.”
The Autumn Budget is on November 26, and Reeves may declare specialist cost-of-living relief, including the possible VAT cut on bills. This would tame inflation and further inform policy down the road.
State pensions will rise by 4.8%, in line with earnings growth.
Benefit and train fares could rise by 3.8% under the CPI. RPI was 4.5%.
The experts warn that although inflation fell to a high of 11.1% in October 2022, living expenses remain elevated and the pace of improvement is slow.
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