UK inflation has climbed to its highest level in almost a year, reaching 3.5% in September as surging petrol and diesel prices intensified pressure on households and businesses ahead of Chancellor of the Exchequer, John Healey’s autumn Budget next week.
Figures released by the Office for National Statistics (ONS) show that Consumer Price Index (CPI) inflation increased from 3.1% in August, exceeding economists’ expectations of 3.4% and moving further away from the Bank of England’s 2% target.
The latest increase marks the highest annual CPI inflation rate since October last year, when it reached 3.6%.
Transport costs were the largest contributor to the increase in inflation in September, with motor fuel prices recording a sharp annual rise as petrol and diesel became more expensive.
ONS data showed that motor fuel prices increased by 30% in the year to September, compared with a 23% rise in August.
Between August and September, average petrol prices rose by 8.2 pence to 169.5 pence per litre, their highest level in approximately four years. Diesel prices increased by 10.7 pence to 192.5 pence per litre, marking their highest level since July 2022.
According to RAC figures, average diesel prices exceeded 200 pence per litre for the first time at the beginning of October, adding to pressure on motorists and businesses reliant on road transport.
The increases have been linked to the Iran war, which has disrupted global oil and gas supplies and contributed to higher energy costs.
ONS Chief Economist Grant Fitzner noted, “Inflation climbed notably in September to its highest annual rate in almost a year.”
“Increased fuel prices were again the main driver, with the cost of diesel the highest since July 2022. Other upward pressures included airfares and, to a lesser extent, computer games and live events, which are often volatile. These were partially offset by the cost of hotel stays, where prices rose by less than this time last year.”
Grant Fitzner
Fitzner added that the annual cost of raw materials and goods leaving factories continued to rise, driven by higher crude oil and petrol prices, respectively.
The ONS also reported increases in other measures of inflation. Consumer Price Index including Housing (CPIH), which incorporates owner-occupiers’ housing costs, rose to 3.6% in September from 3.3% in August, while Retail Prices Index (RPI) inflation increased from 3.4% to 3.9%.
Rising Inflation Intensifies Pressure on Chancellor of the Exchequer
The latest figures have placed renewed focus on the Government’s response to rising living costs as Chancellor of the Exchequer, John Healey, prepares to deliver his autumn Budget next week.
Responding to the data, the Chancellor indicated, “we know that price rises from conflicts in the Middle East and Europe are hitting Britain and countries worldwide.”
John Healey also defended the Government’s decision to begin drilling in the Jackdaw gas field in the North Sea, describing it as an investment “in our clean energy future and supporting British workers.”
“In my Budget next week, I will keep up this momentum. Maintaining our fiscal discipline and drive for growth in every postcode, while giving businesses and families some breathing space.”
John Healey
However, economists warned that the acceleration in inflation could complicate the Chancellor’s efforts to balance support for households and businesses with fiscal discipline.
Suren Thiru, Chief Economist at the Institute of Chartered Accountants in England and Wales (ICAEW), noted that inflation is “deepening the financial squeeze on households and businesses.”
“Rising inflation is turning the Budget into a perilous high-wire act for the Chancellor, increasing pressure for cost-of-living support while pushing up Government borrowing costs, which is shrinking fiscal headroom and narrowing his policy options.”
Suren Thiru
Further pressure on household budgets is expected from the increase in Ofgem’s energy price cap that took effect at the beginning of October, raising the prospect of higher energy bills for dual-fuel households over the winter.
Bank of England Faces Interest Rate Uncertainty
The rise in inflation has also increased uncertainty over the Bank of England’s next interest rate decision, with economists warning that persistent price pressures could delay monetary easing or prompt tighter policy.
According to Martin Sartorius, Lead Economist at the Confederation of British Industry (CBI), September’s increase meant an interest rate rise is “firmly on the table” at the Bank’s next meeting in November.
He emphasised that policymakers would likely seek to “guard against the risk of persistently higher headline inflation” feeding into other parts of the economy, including shop prices and wages.
Economists also expect inflation to face additional upward pressure in the coming months as higher household energy costs feed through to the wider economy.
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