UK inflation eases in September but unlikely to affect expectations for BoE rate hike next month

British consumer prices unexpectedly slowed in September, rising 3.1% on annual basis, compared to 3.2% in August, while economists expected the figure to remain unchanged at 3.2%.

A brief decline was seen as a just temporary relief for consumers, as inflation had topped 3% for two consecutive months and hurting the spending power of households.
Lower CPI figure in September is unlikely to change wide expectations for raising interest rates, as BoE is gearing up for rate hike on Nov 4 policy meeting, to become the first of world’s major central banks to increase rates.

The BoE said last month it expected inflation to move slightly above 4% in the fourth quarter, but the latest sharp rise in energy prices further increased the risks from inflation, prompting more hawkish tones from BoE Governor Bailey on his interview last weekend.

Bailey said that demand for workers in Britain had been stronger than expected and expressed concerns about labor supply growth, but also said that there was no a general pattern of labor market pressure, as wages showed overall increase.

The hospitality sector made the biggest contribution in September’s CPI figure, while prices of other consumer goods and services continued to rise, and prices of food dropped less than in the same period last year.

Surge in energy prices, as well as rise in prices of metals and machinery, lifted the prices of goods produced by factories in September, while costs of road freight also continued to rise.