British inflation at five-year high in September, rate hike on track

Jon Howard
October 19, 2017

In a speech the following day, external MPC member Gertjan Vlieghe - considered one of the most dovish members of the council - told his audience that "the evolution of the data is increasingly suggesting that we are approaching the moment when Bank Rate may need to early as the coming months".

The pound sterling exchange rate was trending higher against the euro (GBP/EUR) this morning after the highly-anticipated United Kingdom inflation reading rose to 3.0% in September, a five-and-a-half-year high.

Pensions are protected by a so-called "triple lock", which means they are raised in line with the highest of average earnings, CPI or 2.5%.

The state pension is linked to last month's CPI rate, meaning the amount dished out by the Government will increase by at least 3% next year.

BANK of England governor Mark Carney has signalled a rate rise to tackle Brexit-fuelled inflation and said a transition agreement for European Union withdrawal is in "everyone's interest".

There is an 80 per cent chance of the base rate rising in November from its current rate of 0.25 per cent, according to financial markets.

New Bank of England Deputy Governor Dave Ramsden said on Tuesday that domestic price pressures remain below the kind of levels that would pose a threat to the central bank's inflation target.

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Four days and one month before to this day, the British pound staged a sterling rally - it soared to pre-Brexit levels against the U.S. dollar and the Japanese yen (and to a two-month high against the strengthening euro).

Nonetheless, last month the BoE said it expected to raise interest rates in the coming months if the economy and price pressures continued to strengthen.

The Government has set an inflation target of 2%, with protocol dictating that Mr Carney must contact the Chancellor if inflation exceeds 3% or falls short of 1%. Business rates will go up by September's Retail Prices Index (RPI) of 3.9%.

Benefit claimants have also been bruised by September's CPI rate, as the Government's decision to freeze working-age benefits in cash terms until March 2020 means £450 a year will now be shaved off some state handouts in 2019/20. He said he anticipates having to write a letter to the Treasury explaining why inflation has risen above 3%.

"Increases to the National Living Wage are also delivering the fastest pay rise for the lowest paid in 20 years". "These effects were partly offset by clothing prices that rose less strongly than this time past year". But there was some uncertainty as to how much more prices would rise in September.

The Consumer Price Index, including owner-occupiers' housing costs (CPIH), was 2.8% in September, up from 2.7% in August.

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