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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK has highest inflation in G7 after CPI fails to fall in September – as it happened

Inflation United Kingdom United States Office for National Statistics China Economy MPC Petrol The Bank of England
A supermarket in London, Britain. Food inflation may have eased last month
A supermarket in London, Britain. Food inflation may have eased last month Photograph: Andy Rain/EPA

Closing post

Time to wrap up.

Here are today’s stories on the UK’s sticky inflation in September:

And the rest of today’s news:

https://www.theguardian.com/business/2023/oct/18/ee-sell-smart-tvs-fridges-kettles-mobile-bt

James Smith, research director at the Resolution Foundation thinktank, has warned the government against freezing working age benefits next year, rather than increasing them in line with inflation.

Folliwing this morning’s news that inflation stuck at 6.7% in September, Smith explains:

“Progress on falling inflation has stalled, for one month at least. It should fall sharply next month to below 5 per cent next, as energy prices fall for most people.

“The latest inflation data tells us about the recent past and also shapes cost-of-living pressures on low and middle income households next year, as it normally used to increase benefits in April.

“Should the government choose not to do this, as it has done seven times since 2010, in order to save money, nine million families across Britain will pay a heavy price.

“Families who receive benefits would see their incomes fall by £460 on average, while many low-income families with kids face much higher income losses, rising to £1,200 for a low income couple with two children.”

Here’s our breakdown of the key changes in today’s inflation report:

Charities urge chancellor to lift benefits in line with inflation

Children’s charities are urging the Government to raise benefits at least in line with the latest inflation figures to help families whose finances are being “pushed to the brink”.

A joint open letter to Conservative MPs saw the charities say they are “deeply concerned” by reports the Chancellor Jeremy Hunt might raise benefits by a lower figure – a decision they warned would have an impact on millions of low-income families.

The letter, from Save the Children, the Trussell Trust food bank network, The Joseph Rowntree Foundation, Action for Children, Citizen’s Advice and The Children’s Society, urges Conservative MPs to demand Mr Hunt must “do the right thing” by uprating benefits at least in line with September’s inflation figure.

The organisations will be hoping this happens when Mr Hunt makes his autumn statement on November 22 – although Downing Street has declined to make any commitment, saying there is a process to follow.

European stock markets are continuing to slide, with the UK’s FTSE 100 index now down 95 points or 1.25% at 7579 points.

Michael Hewson of CMC Markets explains:

European markets are on the back foot today as the political temperature in the Middle East ratchets up further in the wake of the hospital bombing in Gaza.

With evidence starting to emerge that Israel may not have been responsible for the blast, the reality is that this may no longer matter given the heat already generated by last night’s horrific events. A lot of people have already made up their minds and aren’t likely to be dissuaded from their initial views which could well mean that it is going to be very hard for cooler heads to prevail.

Sentiment hasn’t been helped by reports of airport shutdowns in France due to terror threats which are weighing on the airline sector with losses for easyJet, IAG, Wizz Air and Ryanair.

Updated

In the bond markets, the interest rate on benchmark US government debt is rising.

The yield on 10-year Treasury bonds has risen to 4.889%, the highest since 2007.

That indicates investors are anticipating higher inflation, after the Israel-Hamas war pushed up oil prices today.

Simon Green, head of rates at property firm Gerald Eve, has calculated that UK business rates would rise by £1.7bn next year, if the government uses today’s inflation reading of 6.7% as the benchmark.

He argues that this would be an error, and that the Treasury should not raise business rates by inflation in April.

Leisure, hospitality and retail businesses also face a hit next Spring when the various post-Covid support schemes for the high street will also come to an end.

Green says:

“If the Government were to introduce a 6.7% rise for every ratepayer, at a time when costs are already under enormous pressure, that risks causing further inflation as businesses will have no choice but to pass on the costs to customers.

“Clobbering high streets, retail parks, office blocks and logistics firms with these sky-high rises will also create a significant blow to the economic recovery that everyone wants to see.

“Those in leisure, hospitality and retail are potentially facing a double hit, with a 75% rates relief package worth up to £110,000 per business due to come to an end next year too.

“Chancellor Jeremy Hunt should announce at his budget next month – or even sooner – that the rise in line with inflation will be scrapped and until inflation is back to a more manageable level and to extend the rates relief support for the retail, hospitality and leisure sectors which continue to suffer. This will reassure businesses struggling with rising costs.”

[as flagged earlier, Altus Group estimated business rate bills would rise by nearly £2bn if business rates were raised by 6.7%, a prospect causing alarm in the hospitality sectora and in retail]

Updated

Inflation isn’t the only thing eating into UK incomes.

Workers are also facing a higher tax take, partly because the thresholds where higher tax bands kick in have been frozen by the government.

This leads to fiscal drag, where people are pulled into paying more without the government increasing the tax rate.

Bloomberg’s Merryn Somerset Webb has written about it here.

Here’s a flavour:

If the personal allowance had not been frozen since 2021, it would be set to rise to £15,225 in April. It will instead remain stuck at £12,570. The higher rate tax band would start at £60,886 (using numbers from investment platform AJ Bell). Instead it will be £50,270.

This is all very nice for our state finances: the Institute for Fiscal Studies think tank reckons that this stunner of a stealth tax will raise an extra £52 billion for the government by 2027. The results for the average worker aren’t so nice.

Someone who was on the average UK salary of £33,000 at the start of the income tax band freeze will end up paying more than £2,500 extra in tax over the entire duration of the freeze, says AJ Bell’s Laura Suter (assuming average wage increases over the same period).

Those who started on an income of £50,000 are going to feel it even more. If income tax bands had remained inflation-linked they would (again assuming average wage increases) have stayed below the higher-rate band. Now they will not. The result? They will pay £13,000 more in tax over the duration of the freeze.

More here: Tax Inflation Is Squeezing UK Consumers Too

And here’s a chart showing fiscal drag in action, from IFS economist Ben Zaranko.

Updated

Over in the US, there are signs that the housing market may be cooling.

Applications for building permits – giving permission to construct a new property – fell by 4.4% in September, government data shows.

That indicates that demand in the construction sector cooled last month, as high interest rates weighed on activity.

However, the number of new construction projects getting under way rose.

Housing Starts rose 7% on a monthly basis in September, after a 12.5% decline in August.

P&G sales boosted by rising prices

US consumer goods producer Procter & Gamble have just illustrated why inflation remains high.

P&G has reported a 6% increase in net sales in the July-September quarter, to $21.9bn.

This was due to a 7% increase in prices, while sales volumes fell by 1% – probably as some customers were put off by more expensive items on the shelves.

Prices of grooming products rose 9%, while ‘baby, feminine and family care’ products, and ‘fabric & home care’ items, both cost 8% more than a year ago.

Procter & Gamble's Q1 2024 sales figures

Updated

European stock markets have fallen deeper into the red, as invesors grow more cautious.

The FTSE 100 index index is now down 0.6%, or 47 points, at 7627. Housebuilders are still among the fallers, after Barratt warned the market was tough this year.

Airlines, and jet enging maker Rolls-Royce, are also in the fallers, as tensions in the Middle East weigh on the travel sector.

Germany’s DAX and France’s CAC are both down 0.55%

Bank of America’s latest Global Fund Manager Survey, released this morning, shows that investors have turned bearish again.

Now, 30% of investors fear central bankers will drive economies into a “hard landing”, which is up from 21% in September.

Hoaever, a Goldilocks “soft landing” remains the base case, with 59% of investors expecting inflation to be tamed without a recession.

The FMS also showed investors increasing their cash holdings, a sign of nervousness.

EE to start selling smart fridges, kettles and TVs as the mobile giant moves in on Amazon, Currys and Argos

BT-owned EE is to start selling smart TVs, fridges, kettles and fitness products as it looks to move beyond its roots in smartphones and enter an e-commerce market dominated by brands such as Amazon, Currys and Argos.

The mobile operator, which has 25 million subscribers, is seeking to leverage its experience selling telecoms products and services moving into categories including smart home security, insurance and games consoles to all UK consumers.

EE, which is replacing BT as the telecoms giant’s consumer masterbrand for the future, has felt emboldened to move into selling consumer electronics after seeing significant success with games consoles such as Xbox and Playstation.

Marc Allera, the chief executive of EE, says that it felt confident it could move into selling other products after becoming a “top 3 or 4 retailer” of games consoles, as well as being the UK’s biggest smartphone retailer.

“We are taking our learnings from selling smartphones - spreading purchase payments, cheap finance, offering bundles and connectivity services - and are bringing that to other categories starting with consumer electronics. The real drive is not necessarily selling a lot of smart kettles, it is about becoming a more relevant brand for consumers for the future.”

The mobile operator is set to open up its app and website as a sales hub for all UK consumers to be able to use, through the creation of an individual EE ID that operates in a similar fashion to logging in with Apple or Google, and is backing “new EE” positioning with the largest ad campaign since the brand was launched in 2012.

“We are playing with what the brand can become,” said Allera. “Innovation in telecoms has been minimal for the last few years. We are the UK’s largest subscription business and opening up to everyone is us reinventing what the role of a telco is for the future. Some things will work, some won’t work.”

Sacha Lord, the Night Time Economy Adviser for Greater Manchester, is urging the government not to raise business rates next April by today’s inflation reading (as experts fear will happen, see earlier post).

Lord explains:

“The unchanged CPI inflation rate released today will create further pressure on all small businesses, especially those in hospitality.

“We have seen the effects of inflation and resulting decreased discretionary spending on the sector over the past 12 months, and today’s news will result in these difficulties continuing.

“While some venues may seem busy, especially those trading in city centres, we have to note that many sites have already altered business plans, reduced opening hours to reflect decreased turnovers, or withdrawn planned expansion or investments entirely.

“It is in the interest of the growth of the UK economy that the Government intervenes to halt any further financial pressures on the hospitality sector, including a rethink on inflation-linked tax increases and the planned removal of the current business rates relief package from April.”

Today’s UK inflation report hasn’t had much impact on City expectations for next month’s interest rate decision.

The money markets currently indicate a 78.5% chance that the Bank of England leaves its benchmark rate at 5.25% in November, up from 76% last night.

Stephen Payne, portfolio manager at Janus Henderson Investors, explains why investors don’t expect a hike next month:

“UK CPI came in at 6.7% this morning, flat on the month compared to August, so a pause in the downtrend. Economists’ forecasts were for 6.6%, so the number was marginally ahead of expectations.

However, it is still below the Bank of England’s forecast and so unlikely to push the MPC into a hike at their next meeting. Market reaction has been minimal with rate expectations unchanged, whilst 2-year gilt yields briefly moved a little higher before unwinding that move. Petrol prices were the key driver of the higher number but interestingly food and beverage prices actually fell month-on-month.

The October print will be notable, as the spike in energy bills last year drop out of the comparison base, so a sharp fall in inflation can be expected in October to somewhere around 5%.”

The NIESR research institute says the UK’s food inflation rate of 12.1%, down from 13.6% in August, is concerning.

They say:

“There is no government support to help households (especially lower income households, who spend a greater part of their incomes on food) offset this cost.”

NIESR also warns that underlying inflationary pressures “remain elevated”, and are generating “persistence” in the headline rate of inflation.

Analysts at RBC Capital Markets predict the Bank of England’s monetary policy committee (MPC) will not raise UK interest rates higher, despite inflation failing to drop last month.

They told clients this morning:

Since the MPC’s decision to hold rates in September we have argued that it would take a significant upside surprise in the data for them to restart their hiking cycle.

Today’s data doesn’t represent that ‘significant upside surprise’ to our minds. Indeed we’d argue that compared with the MPC’s expectations it doesn’t really represent a ‘surprise’. We continue to see the MPC holding Bank Rate from here.

Back in the UK, we are just “one wrong move” away from a recession, warns Michael Field, senior equity strategist at Morningstar, after this morning’s inflation report.

“The news that UK CPI didn’t fall in September will disappoint the market today. At 6.7%, inflation in the UK remains high, much higher in fact than the Bank of England’s target rate of 2%. The good news in the release was that core inflation fell by 0.1% to 6.1%, so some relief for consumers, but not much.

“Optimists will point to the large fall that should come next month, when we come to the one-year marker of the Ofgem cap on energy prices. This should knock a good 1% off headline inflation, but again if we focus on that core component, it likely won’t shift. Further, the danger is that getting core inflation down from here to anywhere near 2% may take years, not just months.

Why is this a problem? Well, it poses a dilemma to the Bank of England, stubbornly high inflation means that they will likely keep interest rates high. Running high interest rates with a weak economy is a tight-rope act, one wrong move and we are in a potentially damaging recession.

We also have confirmation today that inflation across the eurozone fell last month.

Consumer prices in the single currency bloc rose by 4.3% in the year to September, statistics body Eurostat says, down from 5.2% in August.

In the Netherlands, prices actually fell by 0.3% year-on-year, while they only rose by 0.6% in Denmark and 0.7% in Belgium.

The highest annual rates were recorded in Hungary (12.2%), Romania (9.2%) and Slovakia (9.0%).

Food, alcohol & tobacco price across the eurozone rose by 8.8% over the last year, slower than the 12.1% increase in UK Food and non-alcoholic beverage prices.

Updated

Rishi Sunak has insisted the government will meet his target of halving inflation, despite CPI sticking at 6.7% in September.

Sunak says:

“Tackling inflation remains my number one priority as Prime Minister.

“We will stick to our plan and get it done.”

UK rents rise again

UK tenants continue to be squeezed by rising rents.

The ONS reports that private rental prices paid by tenants in the UK rose by 5.7% in the 12 months to September, up from a revised 5.6% in the year to August.

That is the largest percentage increase since the ONS started collecting this data in January 2016.

It adds:

  • Annual private rental prices increased by 5.6% in England, 6.9% in Wales, and 6.0% in Scotland in the 12 months to September 2023.

  • Within England, London had the highest annual percentage change in private rental prices in the 12 months to September 2023 at 6.2%, while the North East saw the lowest at 4.7%.

  • London’s annual percentage change in private rental prices was at its highest annual rate since the London data series began in January 2006.

The jump in interest rates, making house purchases unaffortable for many, has added to the pressure on the rental market.

ONS: House price inflation lowest since 2012

The latest house price inflation data is out, showing prices rose by the smallest amount in a decade in August.

The Office for National Statistics reports that average UK house prices rose by 0.2% per year in August, the smallest rise since April 2012.

At first glance, it’s surprising to see that house prices rose at all – as lender Nationwide reported they fell by 5.3% in the year to August.

But, the ONS data includes cash buyers, as well as those taking out a mortgage.

The ONS says the average UK house price was £291,000 in August 2023.

That’s £9,000 above the recent low point in March 2023, but below the record high of £292,000 last November.

It adds:

  • Average house prices over the 12 months to August 2023 remained little changed in England to £310,000 (0.0%), decreased in Wales to £217,000 (negative 0.1%) and increased in Scotland to £194,000 (1.1%).

  • Average house prices increased by 2.7% to £174,000 in the year to Quarter 2 (Apr to June) 2023 in Northern Ireland.

  • The North East saw the highest annual percentage change of all English regions in the 12 months to August 2023 (3.6%), while the East of England saw the lowest (negative 1.6%).

One interesting nugget in today’s inflation data, is that fish inflation has risen.

The ONS says that pricier prawns were to blame:

The only class [within Food and non-alcoholic beverages] to provide an upward contribution was fish, where the largest upward effect came from frozen prawns.

This led to the annual rate for fish increasing to 8.7%, up from 6.8% in August.

Updated

September's inflation could push up business rates by almost £2bn

UK firms are bracing for a jump in costs next year, if the government uses today’s inflation data to set business rates.

Commercial real estate intelligence firm Altus Group has calculaed that the business rates bills will rise by £1.95bn in England next April, if ministers stick to their plan of using September’s CPI rate to set the rise.

Of that, £415m will be shouldered by “the embattled retail sector”, Altus warns.

Jacqui Baker, head of retail at RSM UK, warns that some businesses won’t be able to meet higher rates, saying:

‘The current business rates regime is already crippling retailers, so the prospect of a £1.95bn jump in rates next April will be impossible for some retailers to find.

The Chancellor needs to extend the current relief measures for another year whilst delivering real reform that is fit for purpose to allow the high street to not only survive, but to thrive.’

Trade body UKHospitality has calculated that hospitality businesses would face an additional £234m in business rates.

They also warn that hospitality firms could face an extra £630m of costs if the government ends the current business rates relief for the sector in April.

The UK’s FTSE 100 share index has dipped this morning, after inflation came in above expectations in September.

Housebuilders are leading the fallers, after Barratt Development (-2.7%) told shareholders that “the trading environment remains difficult, with potential homebuyers still facing mortgage challenges”.

Rival Taylor Wimpey are down 2.3%, with kitchen maker Howden Joinery losing 2%.

That’s left the FTSE 100 down 0.1% at 7667, down 7 points.

Updated

The Unite union are warning that workers and families need help to get through another winter of rising bills.

Unite general secretary Sharon Graham is calling for action from the Government, saying:

“As the cost-of-living crisis nears its second winter, millions of people face the prospect – yet again – of choosing between heating and eating.

“Headline inflation is still painfully high. In the real world, prices are still rising at a punishing rate.

“For all his talk about ‘tough choices’, the Prime Minister has failed to make the obvious one – it is time to help out ordinary people by taxing the excess profits of the businesses lining their pockets at our expense.”

Professor Costas Milas, of the University of Liverpool’s Management School, argues that the Bank of England could cut interest rates if geopolitical risks worsen.

He tells us:

Today’s inflation reading of 6.7%, unchanged from last month, indicates inflation stickiness which should, in theory, worry the Bank’s policymakers. This is not necessarily the case.

The war in Gaza and the rising geopolitical risk do matter for UK inflation. As I have shown in my piece for The Conversation (link here), what really matters for UK inflation today is both oil price rises and geopolitical risk.

In fact, a model which considers both oil and geopolitical risk is able to predict UK inflation better than alternatives in the current circumstances.

Rising oil prices might keep UK inflation high in the short term but fast-rising geopolitical risk will suppress inflation mainly via the recessionary channel. As things stand, we should, at best, expect no change in interest rates. Unless, of course, the war in Gaza gets out of control, in which case, Central Banks, including the Bank of England, will be cutting interest rates next time an interest rate meeting takes place…

Oil prices rise after Gaza hospital blast prompts global concern

The oil price, one of the factors keeping UK inflation high in September, has risen this morning.

Brent crude is up 1.6% at $91.41 per barrel, after a blast at a Gaza hospital that left hundreds of Palestinians dead and caused concerns about global oil supply disruption.

Updated

Full story: UK inflation unexpectedly holds steady at 6.7%

UK inflation unexpectedly held steady in September at 6.7% as soaring fuel costs offset the first monthly fall in food prices for two years to maintain pressure on households amid the cost of living crisis.

The Office for National Statistics said the annual inflation rate as measured by the consumer prices index remained unchanged from August’s reading, raising questions over the Bank of England’s next decision on interest rates in November. City economists had forecast a modest fall to 6.6%.

Food and non-alcoholic drink prices fell by 0.2% on the month – the first monthly decline since September 2021 – helped by fierce competition among supermarkets driving down prices for milk, cheese and eggs, as well as mineral water, soft drinks and juices.

However, prices remain significantly higher than a year ago, with the cost of an average food shop still up by more than 12% on an annual basis.

Highlighting the pressure on households, the ONS said a surge in petrol and diesel prices contributed to almost all of the upward pressure on the inflation rate, amid a sharp rise in global oil costs over recent months.

The chancellor, Jeremy Hunt, said:

“As we have seen across other G7 countries, inflation rarely falls in a straight line, but if we stick to our plan then we still expect it to keep falling this year. Today’s news just shows this is even more important so we can ease the pressure on families and businesses.”

More here:

Economists: Bank of England to leave rates on hold in November

Several City economists are predicting the Bank of England will leave interest rates on hold at 5.25% next month, despite inflation failing to fall in September.

James Smith, developed markets economist at ING, says:

UK inflation has come in a little higher than expected, but given the surprise isn’t huge and some of it can be put down to volatile package holidays, we don’t think there’s enough here to tempt the Bank of England into resuming its rate hike cycle in early November….

Smith also predicts a fall in headline inflation in October, as last year’s steep increase in household energy bills drops out of the annual comparison.

With food inflation slowing too, we headline CPI to dip to 5% or below in October and stay broadly unchanged until the end of the year, though this partly depends on what happens to oil prices.

RSM UK’s economist Thomas Pugh also predicts the Bank’s monetary policy committee will keep interest rates on hold at 5.25% at its meeting next month, as they also did in September.

Pugh says:

We continue to think that inflation will continue to decline from here as lower energy and goods prices continue to feed through. What’s more, growing slack in the labour market as labour supply improves, and demand for labour to ease a little should reduce wage growth over the next year, limiting the risk of a wage-price spiral. October will bring the next big drop, as the 2022 increase in household energy bills falls out of the annual comparison and is replaced by lower prices this year.

Overall, today’s data largely vindicates the MPC’s decision to hold interest rates at 5.25%. If inflation registers a big fall in October, as we expect, the case for further tightening will become even weaker.

Rob Morgan, chief investment analyst at Charles Stanley Direct, says the BoE is likely to continue to pause rates for the time being to consider more economic and inflation data.

However, the stubbornness of UK inflation is a “reality check” for the Bank, Morgan says:

Today’s data highlights the stubbornness of UK inflation, especially energy costs and services which will keep the Bank of England on its toes about the possibility of further interest rate hikes.

The City money markets currently indicate there’s a 77% chance that the Bank leaves rates on hold at 5.25% in November, with a 23% chance of a rise to 5.5%.

Economist Julian Jessop, the economics fellow at the right-wing IEA thinktank, also predicts inflation will drop in October:

Food and non-alcoholic beverage prices fell by 0.2% during September, the first such monthly fall in two years.

That pulled the annual rate of food inflation down to 12.1% last month (meaning food cost 12.1% more than in September 2022), down from 13.6% in August.

Thomas Pugh, economist at audit, tax and consulting firm RSM UK, says:

The good news is that food and non-alcoholic beverages prices fell by 0.2% m/m in September, the first fall since September 2021, which dragged down inflation in that category to 12.1%.

There were also smaller falls in consumer goods categories like clothing and furniture in a sign that weaker retail sales are making firms wary about pushing for big price rises.

Capital Economics: inflation to fall sharply in October

City consultancy Capital Economics has some good news for households – and chancellor Jeremy Hunt.

They predict that inflation will tumble in a month’s time, due to the drop in energy bills this month.

Paul Dales, their chief UK economist, explains that this will help the government hit its goal of halving inflation this year.

He says:

The pre-announced decline in the Ofgem price cap, which kicked in on 1st October, will subtract a huge 1.3ppts from CPI inflation.

That means CPI inflation will be pretty close to 5.0% in October and on track to fall below the 5.1% rate that would mean the Chancellor can successfully say inflation has halved this year.

Capital Economics predict inflation will continue to fall next year too, to average around 2.0% in 2024.

But they warn….

The recent jump in the oil price to $92 per barrel and the 35% leap in the natural gas price since the conflict in the Middle East began generates a clear risk that inflation will fall more slowly, perhaps to an average of 3.0%.

Today’s CPI readings point to the fact that inflation is proving to be stickier than hoped, says Victoria Scholar, head of investment at interactive investor:

It is still stuck sharply above the 2% target. Rising oil prices have pushed motor fuel prices higher, offsetting to some extent the impact of the Bank of England’s aggressive stream of rate increases on the headline rate of inflation. Further increases in oil prices could derail inflation’s path back down towards more normal levels and could also potentially pave the way for further monetary tightening from the central bank.

Sterling rallied after the higher-than-expected inflation reading, suggesting that there is an increased likelihood of another rate hike next month.”

Updated

UK has higher inflation in G7

Today’s inflation report confirms that the UK has the highest inflation rate of any G7 country.

Prices are rising slower in other major advanced economies, as this table of the latest CPI inflation rates shows:

  • US: 3.7% in September

  • Canada: 3.8% in September

  • Germany: 4.5% in September

  • France: +4.9% in September

  • Italy: +5.3% in September

  • Japan: +3.2% in August (we get September’s inflation report on Friday)

A chart showing UK inflation vs France and Germany

Some economists have warned that the UK economy suffered a double-whammy. Like the US it has struggled with labour shortages after Covid-19, while it was also hit by the surge in European energy costs after the invasion of Ukraine last year.

Brexit has also been blamed, for creating worker shortgages that pushed up firms’ costs and adding to trade friction at the border, making food more expensive.

Another factor is the UK’s energy price cap, which means bills fall (or rise) on a quarterly basis, with the next drop due in October’s inflation data.

TUC General Secretary Paul Nowak says:

“Bills and prices are still going up - just a bit more slowly than they were a year ago.

“While other countries have acted decisively to reduce cost of living pressures, working families and businesses here remain seriously under the cosh.

“Let’s not lose sight of the bigger picture. The UK is teetering on the brink of recession, with employment falling as companies scramble to cut costs.

“The Conservatives’ lack of a credible economic plan is costing us dear. Britain cannot afford the Tories.”

Updated

Hunt: Need to ease pressure on families and firms

Chancellor Jeremy Hunt says:

“As we have seen across other G7 countries, inflation rarely falls in a straight line, but if we stick to our plan then we still expect it to keep falling this year.

“Today’s news just shows this is even more important so we can ease the pressure on families and businesses.”

Hunt is right that inflation is an erratic beast. In the US, for example, CPI fell to 3.2% in July, but then jumped back to 3.7% in August before staying there in September.

Treasury minister Andrew Griffith has insisted the Government was “on track” to hit its pledge to halve inflation this year, despite CPI inflation sticking at 6.7% in September.

The economic secretary to the Treasury told Times Radio:

“At the beginning of the year we set ourselves an ambitious target to halve inflation this year. Today’s figures – flat for September – show we are on track for that.”

UK CPI inflation was 10.5% in December 2022, which suggests the government needs it to fall to 5.25% by this December to declare a win.

Pound rises after inflation sticks at 6.7%

Sterling has risen a little against the US dollar this morning, after UK inflation failed to fall as hoped.

The pound has gained a fifth of a cent, to $1.22.

Updated

Core UK inflation has dipped

Underlying UK inflation has fallen slightly.

Core CPI (which strips out energy, food, alcohol and tobacco) rose by 6.1% in the 12 months to September, down from 6.2% in August.

That may seem irrelevant to a family struggling to make ends meet – as food and energy are essential purchases.

But, it’s a sign that inflationary pressures could be easing, which is what the Bank of England is looking to see.

Annual goods inflation fell slightly from 6.3% to 6.2%, but services inflation rose from 6.8% to 6.9%.

Updated

UK inflation: the key chart

This chart shows how UK inflation remains below its peak of 11.1% set last October.

UK inflation to September 2023

But prices are still rising sharply faster on an annual basis than three years ago – CPI inflation was just 0.5% in September 2020.

Updated

Rising prices for motor fuel pushed up inflation

Rsing petrol prices prevented UK inflation falling from August’s 6.7%, as City economists had hoped.

The Office for National Statistics says the largest downward contributions to the monthly change in inflation came from food and non-alcoholic beverages, where prices fell on the month for the first time since September 2021.

Furniture and household goods prices rose by less than a year ago.

However, rising prices for motor fuel made the largest upward contribution to the change in the annual rates – keeping inflation at 6.7% in September.

The average price of petrol rose by 5.1p per litre between August and September to stand at 153.6p litre in September, the ONS says.

Similarly, diesel prices rose by 6.3p per litre to 157.4p per litre.

Updated

On a monthly basis, consumer prices rose by 0.5% in September alone, today’s inflation report shows.

UK inflation sticks at 6.7%

Newsflash: UK inflation was unchanged at 6.7% in September, matching August’s reading, and dashing hopes of another fall.

The news that prices rose at the same pace last month halts months of progress towards easing the pressure on households.

It leaves inflation over three times above the Bank of England’s target of 2%.

More to follow…..

Updated

China’s economy grows faster than expected in third quarter

While we await the latest UK inflation report (due in 10 minutes), there is encouraging economic news from China this morning.

China’s gross domestic product grew 4.9% year on year in the third quarter, beating market expectations.

Growth was boosted by a jump in retail sales growth, as Beijing steps up support for the world’s second-biggest economy.

Stephen Innes, managing partner at SPI Asset Management, says:

China’s economic recovery showed mild momentum in the third quarter, posting a 1.3% growth from the previous three months.

This growth suggests a modest improvement in the Chinese economy. However, there are ongoing calls for increased policy support to maintain consistent growth, as there are concerns about the sustainability of the recovery.

Chinese authorities have implemented various measures to support economic growth, particularly in response to challenges from the property market and weak domestic demand. Focusing on policy support will likely continue as China seeks to stabilize its economy.

Analysts at RBC Capital Markets predict UK inflation only fell slightly last month, to 6.6% from 6.7% in August.

They point out that there are a wide range of estimates, adding:

Within the detail, the main focus will be services inflation, which surprisingly fell from 7.4% to 6.8% in the August report, and is one of the key factors the BoE is monitoring for evidence it has tightened enough (along with earnings growth and labour market tightness).

Rate expectations slipped slightly after yesterday’s slightly softer earnings data with SONIA forwards pricing in around 12bp of further tightening spread over the next three MPC meetings.

Updated

Today's inflation reading could set benefit increases

Today’s inflation reading could be important in calculating how much benefits payments will increase next year.

It could also influence some tax increases, such as business rates.

PA Media explains:

Inflation-linked benefits, such as universal credit, and tax credits, are expected to rise in April next year by the rate of CPI inflation from this September.

A higher-than-expected rate of inflation is therefore likely to see increased costs for the Treasury.

Nevertheless, this outcome could also result in higher tax revenues, as some taxes are tied to the inflation rate for the month.

Introduction: UK September's inflation report in focus

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

We’ll learn today if the UK’s cost of living squeeze is easing, when the latest inflation data is released at 7am this morning.

Economists predict that inflation fell last month, with the Consumer Prices Index forecast to fall to around 6.6% in September, down from 6.7% in August.

That would be the lowest annual inflation rate since February 2022, but still leave prices rising more than three times faster than the UK’s 2% target.

Food price inflation, which soared after the Ukraine war began, is expected to have slowed, as the price of some products, such as butter and milk, dropped recently.

Clothing is also expected to contribute to the lower inflation rate, with an increase in discounting from shops to stimulate more sales.

But higher fuel prices could have an upward impact on inflation, following the rise in prices at the pumps.

A fall in inflation today could deter the Bank of England from raising interest rates at its next policy meeting in November, after it paused its rate rises in September.

Michael Hewson of CMC Markets says the Bank was right to leave rates at 5.25% last month, so it can assess the” pass-through” of its previous 14 rate hikes:

It’s about time this penny dropped given the challenges facing the UK economy and its good that the MPC has finally woken up to this, although there are differing views amongst MPC members of how much has trickled down with arch dove Swathi Dhingra arguing that only 25% of the impact has been felt.

Data yesterday showed that basic pay rose by 7.8% per year in the last quarter, meaning wages were rising faster than inflation last summer.

The agenda

  • 7am BST: UK inflation report for September

  • 9.30am BST: UK house price and rental costs indices for August

  • 10am BST: Eurozone inflation report for September (final estimate)

  • Noon BST: US weekly mortgage data

  • 1.30pm BST: US building permits and housing starts data

Updated

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