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.”
The latest figures come amid expectations for a finely balanced decision on interest rates from the Bank after it last month paused its most aggressive cycle of increases in decades. Financial markets expect the central bank to leave borrowing costs on hold at its next policy meeting in November.
Despite remaining unchanged on the month, economists said inflation was still on track to fall below 5.1% by December, which would meet Rishi Sunak’s pledge to halve the rate this year.
“As it is still below the 6.9% rate the Bank of England projected back in August we still think that the Bank won’t raise interest rates again,” Paul Dales, the chief UK economist at the consultancy Capital Economics, said. “The new risk, though, is that events in the Middle East restrain how far inflation falls next year.”
Concerns over the fallout from the Israel-Hamas conflict have pushed up the price of oil in recent days, raising the prospect of prolonged high prices for consumers at the pump.
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September’s inflation rate is normally used by the government to increase the value of benefits the following April. However, Rishi Sunak has so far refused to commit amid speculation he was considering a below-inflation rise as the government grapples with tight public finances.
“For ministers to cast doubt on whether they will deliver this uprating in full is unacceptable,” Alfie Stirling, the chief economist of the Joseph Rowntree Foundation poverty charity, said.
“Millions of families need the certainty that benefit payments will begin to recover some of the significant real terms losses suffered over the past two years, and they need that certainty now.”
Treasury officials have also discussed a one-off break from the pensions triple lock. The formula guarantees a rise in line with September’s inflation rate, average earnings or 2.5%, whichever is highest.
After wages rose by 8.5% in the year to July, partly influenced by one-off payments in the public sector, ministers are considering using a lower figure, tracking underlying pay, to save £1bn next year.