UK inflation in September falls unexpectedly, sending pound sterling tumbling

Consumer prices rose 2.4 per cent year-on-year, down from the 2.7 per cent rate in August and below the expectations of City analysts of 2.6 per cent

Ben Chu
Economics Editor
Wednesday 17 October 2018 10:37
Brexsplainer: Living standards, wages and prices

UK inflation came in much weaker than expected in September, lowering the pound sharply.

Consumer prices rose 2.4 per cent year-on-year, down from the 2.7 per cent rate in August and below the expectations of City analysts of 2.6 per cent.

The Office for National Statistics said on Wednesday that food prices were the main downward pull on prices.

There was also downward pressure from clothing and transport.

Core inflation, which strips out volatile food and fuel prices, declined to 1.9 per cent from 2.1 per cent in August.

The Bank of England raised interest rates to 0.75 per cent in August to curb what it saw as building inflationary pressure in the UK economy.

Price pressures falling back

Sterling fell to $1.3140 against the dollar in the wake of the data on Wednesday, down 0.33 per cent on the day, as traders adjusted bets on the timing of the next rate rise from the Bank.

Against the euro the pound was down 0.24 per cent at €1.1362.

“September’s drop reinforces belief that August likely marked the 2018 peak in inflation, but it could prove relatively sticky in the near term,” said Howard Archer of the EY Item Club.

“This is likely to be the consequence of a higher oil price, previously announced rises in domestic energy prices and recent sterling weakness.”

"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 [Bank of England] to act again before it can assess the likely impact of the Brexit negotiations," commented Andrew Wishart of Capital Economics.

Support free-thinking journalism and attend Independent events

According to the ONS, factory gate prices rose to 3.1 per cent in September, up from 2.9 per cent in August, while industrial input prices were up 10.3 per cent.

Separately, it reported that annual UK house price inflation in August eased to 3.2 per cent, down from 3.4 per cent in July.

The ONS reported on Tuesday that average wages, excluding bonuses, were up 3.1 per cent in August, the highest in almost a decade.

Economists said that moderating inflation will increase the purchasing power of those nominal wage increases, helping to boost consumption.

Register for free to continue reading

Registration is a free and easy way to support our truly independent journalism

By registering, you will also enjoy limited access to Premium articles, exclusive newsletters, commenting, and virtual events with our leading journalists

Already have an account? sign in

By clicking ‘Register’ you confirm that your data has been entered correctly and you have read and agree to our Terms of use, Cookie policy and Privacy notice.

This site is protected by reCAPTCHA and the Google Privacy policy and Terms of service apply.

Join our new commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies


Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in