U.K. inflation accelerates in line with expectations in September, BoE likely to hike rate in November

The annual consumer price inflation of U.K. continued to accelerate in September. CPI index rose from 2.9 percent in August to 3 percent. This was in line with consensus expectations and took the annual rate of inflation to a five and a half-year high. In the meantime, underlying price pressures continued to be sticky, with the ‘core’ rate, which strips energy, food, alcohol, and tobacco, stayed the same at 2.7 percent in September. However, the headline inflation move was not matched in the RPI, with the annual rate here holding at 3.9 percent in September, slightly weaker than consensus expectations.

The rise in September inflation gave additional evidence of a continuing effect from last year’s sterling depreciation, as much of the rise came in those components of the CPI that are especially sensitive to movements in the exchange rate. After last month’s solid rises in clothing and footwear and furniture prices. But there was some uncertainty as to how much more prices would rise in September.

In the meantime, the feed through from the recent increase in British Gas electricity tariffs and a further rise in motor fuel prices combined to push overall CPI up on the month by 0.3 percent and stimulated the annual rate to 3 percent.

The rise in September signifies that inflation in the quarter has exceeded the Bank of England’s forecast of 2.7 percent in the third quarter, made at the time of the August Inflation Report. The ongoing effect from past weakness in sterling is likely to continue exerting upward pressure on inflation, noted Lloyds Bank in a research report.

“For some time our expectation has been that inflation would rise above 3 percent, with the annual rate of CPI likely to hit a peak of 3.2 percent in next month’s release for October”, added Lloyds Bank.

The Bank of England’s MPC is expected to sanction a quarter-point rise in Bank Rate during its meeting on 2 November.

At 13:00 GMT the FxWirePro's Hourly Strength Index of British Pound was highly bearish at -166.905, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 47.8029. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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