U.K. headline inflation accelerates slightly in September

The U.K. inflation rate accelerated a bit in the month of September after falling to a four-and-a-half year low in August. The annual rate rose to 0.5 percent, a bit below market expectations of 0.6 percent. Part of the move higher reflected the unwinding of the government’s Eat Out to Help Out scheme, which initially saw restaurant and hotels prices drop 4.7 percent sequentially in August. The 3 percent partial recovery in prices throughout the sector in September, however, implies that outlets have continued to provide an ‘unofficial’ EOHO scheme in a bid keep diner levels up, noted Lloyds Bank in a research report.

Transportation prices also influenced inflation higher in September, most notably airfares. While prices followed seasonal norms by falling in September, the 19.3 percent fall was much less than the ~30 percent fall typically seen at this time of year. This reflected that prices also rose by less over the summer months, led by concerns over the virus and travel restrictions, and therefore had less to fall from, said Lloyds Bank.

In spite of the rise in September inflation, the headline rate continues to be below the central bank’s 2 percent target as mandated to it by the U.K. government. The outlook is still only consistent with a gradual uptrend, especially with the headwinds to economic activity beginning to increase again after the stepping up in localized lockdown measures seen in recent days, added Lloyds Bank.