UK inflation hits 40-year high of 10.1%

Soaring food prices helped push up inflation in September, official data showed on Wednesday, to a record 10.1%.

According to the Office for National Statistics, the consumer price index rose by 10.1% in the 12 months to September, compared to August’s rate of 9.9%. The figure was largely in line with expectations, with most economists forecasting CPI of 10%.

On a monthly basis, CPI rose by 0.5% in September, compared to 0.3% in September 2021.

Including owner occupiers’ housing costs, annual CPIH rose by 8.8%, from 8.6% in August. On a monthly basis it rose 0.4%, compared to 0.3% in September 2021.

The ONS said that rising food prices made the largest upward contribution to the change in both CPIH and CPI, with food and non-alcoholic drinks prices up 14.6% in the year to September, the highest since April 1980. The largest downward pressure was transport, as the price of motor fuels and second hand cars continued to fall.

Inflation has been mounting throughout the year, hitting a 40-year high of 10.1% in July before easing slightly to 9.9%.

In response, the Bank of England has increased interest rates seven times since December, to 2.25%, and a further hike is expected at its next meeting, on 3 November.

Martin Beck, chief economic advisor to the EY Item Club, said: "With energy prices set to rise in October, and upward pressure on the cost of imports from the weak pound, the rise in inflation will add to the list of concerns for households and the Monetary Policy Committee.

"[We] expect CPI to peak at around 11% in October, followed by a more gradual decline that previously anticipated, caused by the recent fall in sterling.

"However, the outlook for inflation beyond the next few months has become more uncertain following the recent fiscal U-turns made by the new chancellor." Beck argued that while tighter fiscal policy could help curb inflation, the decision to end the Energy Price Guarantee early, in April 2023, could see a fresh spike in inflation in the spring.

Naeem Aslam, chief market analyst at AvaTrade, said: "Inflation is not [just] suffocating, it is choking the economy. Consumers are against the ropes; the cost of living crisis is hitting them badly. The data hasn't brought any good news because now the odds are even higher for the BoE to increase rates even more aggressively."

Victoria Scholar, head of investment at Interactive Investor, said: "Without price stability, the cost-of-living crisis will continue to weigh on the economy by squeezing household budgets and dampening business margins.

"However, the central bank is between a rock and a hard place as it looks to curb price pressures without inadvertently adding to the risk of recession."

The government traditionally uses the September inflation rate to calculate April’s rise in the state pension. Earlier this month, prime minister Liz Truss insisted she was committed to the triple lock, where payments rise by whatever is higher: prices, average earnings, or 2.5%.

But on Wednesday her spokesperson told the BBC she was "not making any commitments" on spending.

The triple lock, a Conservative party 2019 manifesto pledge, has allowed pensions to keep up with inflation. Average weekly earnings, excluding bonuses, rose by just 5.4% in the three months to August.