Consumer relief as inflation drops in September

BRITISH inflation fell more than expected in September to a threemonth low, offering some relief to consumers who have been squeezed financially since the Brexit vote.

Consumer prices rose at an annual rate of 2.4 per cent, more than reversing August’s jump to a sixmonth high of 2.7 per cent, the Office for National Statistics (ONS) said.

Sterling fell against the dollar and euro while British government bond prices rose.

The figures are likely to reassure Bank of England officials who forecast in August that inflation would average around 2.5 per cent over the July-September quarter.

“Coupled with the gradual up-tick in wages, the slowing rise in prices will deliver a boost to consumers’ real take-home pay packets, which will also be welcome news for retailers,” said Tej Parikh, senior economist at the Institute of Directors.

“The Bank of England will be unruffled by this week’s data releases, and remains unlikely to budge on interest rates as it continues to monitor the impact of Brexit developments.”

The BoE expects it will need to raise interest rates gradually in response to rising wages, assuming Britain manages to strike a deal with the European Union to smooth its exit from the bloc.

On Tuesday, the ONS said the basic wages of workers had risen at their fastest pace in nearly a decade over the summer months. But wage growth of 3.1 per cent remains meagre by historical standards when adjusted for inflation.

The BoE expects inflation to drift down but stay just above its 2 per cent target in two years’ time as it gradually raises borrowing costs.

Consumer price inflation hit a fiveyear high of 3.1 per cent in November, when the inflationary effect of the pound’s tumble after the Brexit vote in June 2016 reached its peak.

The ONS said food prices, particularly of meat and chocolate, represented the biggest drag on September’s inflation rate. Ferry prices dropped from a “surprisingly high” summer peak.

Still, there could be more shortterm pressure in the pipeline for consumer prices.

For manufacturers, the cost of raw materials, many of them imported, was 10.3 per cent higher than in September 2017, up from a revised 9.4 per cent in August. They increased the prices they charged by 3.1 per cent compared with 2.9 per cent in August.

The ONS said house prices in August rose by an annual 3.2 per cent across the United Kingdom as a whole, the smallest rise since August 2013 and compared with a 3.4 per cent increase in July. Prices in London alone slipped 0.2 per cent.