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Cheaper food drives UK inflation lower in September

The UK inflation rate fell more than expected in September after hitting a six-month high in August.

The Office for National Statistics said the fall to 2.4%, down from 2.7%, was largely driven by lower prices for food and non-alcoholic drinks.

The Consumer Prices Index figure surprised economists who had been expecting inflation to fall to 2.6%.

The result is expected to ease pressure on the Bank of England to raise interest rates in the near future.

Andrew Wishart, UK economist at Capital Economics, said: “With inflation in line with the Bank of England’s forecast, and measures of domestically generated cost pressures, such as core inflation and services inflation falling back, this reduces any pressure on the MPC to act again before it can assess the likely impact of the Brexit negotiations.”

The fall in inflation comes a day after figures showed that wages were rising by 3.1% – the fastest pace in nearly a decade – easing pressure on consumer spending power.

September’s inflation figure is important as it will be used to set state pensions.

It will also be used to determine business rates for the coming year, with the British Retail Consortium forecasting a £180m increase in retailers’ costs.

Mike Hardie, head of inflation at the ONS, said: “Food was the main downward pull on inflation as last year’s September price rises failed to reappear, while ferry prices dropped after their surprisingly high summer peak.

“However, it wasn’t all one-way traffic with energy suppliers pushing up their prices.”

The ONS said food prices, particularly of meat and chocolate, represented the biggest drag on September’s inflation rate.

The price of cultural services, which includes theatre tickets, fell 2.5% while the cost of games, toys and hobbies rose just 1.6%, compared to a 4.4% rise in September last year.

However, the ONS said transport prices were up 5.5% since September 2017, partly due to higher fuel costs.

And electricity prices were up 9.3%, the highest September 12-month rate since 2011.

Interest rates

In August the Bank of England raised interest rates for only the second time in a decade, following a recovery in economic growth.

Yael Selfin, chief economist at KPMG UK, said today’s inflation figures would ease the pressure on the Monetary Policy Committee to make further rate hikes.

“However, the relatively strong wage data released yesterday is likely to keep the Bank of England vigilant to any further signs of increasing inflationary pressures,” she said.

Mike Jakeman, senior economist at PwC, said: “On balance we expect the central bank to maintain its current monetary policy stance until there is greater clarity over the circumstances of the UK’s withdrawal from the EU.”

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BBC News – Business

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