UK Inflation Reached 3.5% in September, Up from 3.1% in August

UK consumer prices were 3.5% higher in September than a year earlier, compared with a 3.1% annual increase reported for August.¹ That movement represents an acceleration in the annual inflation rate between the two reported months, rather than a comparison of September prices directly with August prices.¹ A supported calculation puts the increase in the rate at 0.4 percentage points; that figure describes the difference between the two annual rates.¹ The September reading also exceeded economists’ 3.4% expectation and was the highest reported since October of the previous year.¹

The increase matters in relation to the Bank of England’s stated 2% inflation target, which September’s 3.5% rate exceeded.¹ A supported comparison expresses the gap between the September rate and that target as 1.5 percentage points.¹ The target comparison and the month-to-month change describe different things: one compares inflation with the Bank’s target, while the other compares September’s annual rate with August’s.¹ The report also described the September figure as the highest in almost a year, consistent with its comparison to the previous October.¹³

“Some breathing space”Treasury chief John Healey, clickorlando.com

Transport made the largest contribution to the rise in inflation, and fuel prices were a particularly important part of that contribution.¹ Motor fuel prices increased 30% over the year to September, against a 23% annual increase in August.¹ Those percentages are annual changes in motor fuel prices, not the overall consumer-price inflation rates of 3.5% and 3.1%.¹ The figures therefore show a faster annual rise in motor fuel prices in September than in August, alongside an overall inflation rate that also rose between those months.¹

The report linked higher fuel costs to the Iran war and to bottlenecks in the Strait of Hormuz that constrained global oil and gas supplies.² That account places the fuel-price increase within a wider supply context, but the reported inflation figures themselves measure UK consumer-price changes.¹² The supplied explanation specifically connects the conflict and the Strait’s bottlenecks with pressure on global supplies, rather than describing a separate UK supply measure.² The reported 30% motor-fuel increase and the transport contribution identify where price pressure was prominent in the UK figures; the supply account gives the report’s proposed wider context.¹²

The inflation measure described here is the UK consumer-price rate, reported as an annual comparison for September and August.¹ The available figures identify transport and fuel as contributors, but do not give a count of households or businesses facing a particular price increase.¹ The report’s separate reference to families and businesses comes from the Treasury chief’s comments about a forthcoming budget statement, not from a numerical count of those groups.³ The figures distinguish the broad consumer-price rate from the motor-fuel rate, so the 30% fuel increase should not be read as the rate for all consumer prices.¹

Treasury chief John Healey said that the budget statement planned for the following week would aim to provide businesses and families with “some breathing space” from increasing living costs.³ That was a statement of the intended purpose of the budget announcement, not a reported measure of how much prices would change.³ The reported facts do not specify what policies the statement would contain or quantify the relief it might provide.³ The comments nevertheless identify businesses and families as groups Healey said the planned statement was intended to help with rising living costs.³

Attention also turned to the Bank of England’s next rate decision, scheduled for Nov. 5, with economists expecting an increase.⁴ The previous month, the Bank had kept its main interest rate at 3.75% while signalling that an increase might follow.⁵ Most economists expected the main rate to reach 4%, which was an expectation rather than a reported decision by the Bank.⁷ The inflation report was said to have strengthened market expectations of an increase the following month.²

Suren Thiru, chief economist at ICAEW, said the inflation rise made a rate increase in November more likely.⁶ If the expected increase went ahead, it would reverse the prior downward course of UK interest rates, according to the supported assessment.⁴⁸ Before the U.S. and Israel attacked Iran in late February, UK rates had been declining from a 15-year peak of 5.25%.⁷⁸ The proposed 4% level was an expectation for the Bank’s main rate, while 3.75% was the rate it had held the previous month; neither figure establishes the outcome of the scheduled decision.⁴⁵⁷

The comparison also extends beyond the UK: the U.S. Federal Reserve and the European Central Bank had recently increased their interest rates.⁸ Those decisions provide context for the international rate picture, while the UK’s September inflation figure and its next scheduled decision remain separate reported measures.¹⁴⁸ Taken together, the facts describe an annual UK inflation rate that rose from August, stood above the Bank’s target, and was accompanied by stronger expectations of a UK rate increase.¹² They also distinguish the observed September prices from the anticipated policy response: the inflation reading was reported, while the possible rate rise and its expected level remained forecasts.¹⁴⁷