UK inflation rate jumps to 1%

Ryan Bembridge

October 18, 2016

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The UK inflation rate climbed to 1% in September from 0.6% in August, figures from the Office for National Statistics show.

This represents the biggest monthly rise since June 2014.

The ONS said the main contributors to the rise were the cost of clothing, overnight hotel stays and motor fuels. The cost of gas also fell a year ago which fired up inflation.

House price sentiment increases following Brexit vote

On Friday Governor Mark Carney warned that inflation will rise on products such as food because of the falling value of the pound against other currencies after the June vote to leave the European Union.

Paul Hollingsworth, UK economist at Capital Economics, said: “The ONS noted that there was no “explicit evidence” that the pound’s fall was having a significant impact on consumer prices…yet.

“But the 15% or so drop in sterling on a trade-weighted basis since the referendum has put inflation on a steeper upward trajectory for the next few years.

“We think that CPI will breach the MPC’s 2% target around spring next year, and will peak at about 3.2% in the first half of 2018, once the direct and indirect effects of the pound’s fall have had time to feed through. Nonetheless, this shouldn’t worry the MPC too much.

“Note that recent comments by MPC members including Governor Carney and Deputy Governor Ben Broadbent have indicated that they are willing to tolerate an overshoot of the target in order to focus on stabilising the economy in the short run.

“Accordingly, the latest figures do not rule out the possibility of another interest rate cut in November.”