UK inflation data: What to expect from September’s data

“Core” inflation, which excludes more volatile food and energy prices, is expected to have eased to 3.5% in September, down marginally from 3.6% in August.

Is inflation falling in the UK?

Both measures of inflation have been lower this year: headline CPI hit the BoE’s 2% target in June before rising to 2.2% in July and August, while the core inflation rate fell to 3 .3% in June before rising again. Policymakers remain concerned about the persistence of core inflation, a measure that excludes more volatile energy, food and alcohol prices.

This is the last inflation print before the Budget on 30 October and the Bank of England meeting on 7 November, where interest rates are expected to be cut from 5% to 4.75%. If that happens, it would be the BoE’s second rate cut this year, after it cut rates in August.

Rates were held at 5% at the bank’s most recent meeting on September 19, where the central bank maintained its cautious message on the persistence of inflation:

“Monetary policy will need to remain accommodative long enough until the risks to a sustainable return of inflation to the 2% target over the medium term further dissipate,” it said at the time.

In August, the Bank published its quarterly monetary policy report, which contains projections for long-term inflation. Across the Bank’s inflation forecasts for 2025, CPI remains above the 2% target in one year, before falling below target in 2026. This partly explains the Bank of England’s caution about cutting interest rates too quickly.

War bills, sterling and energy

What has changed in the UK since the last inflation pattern? The conflict in the Middle East has escalated, but this has so far not put much pressure on oil prices, which are actually lower than a year ago. Brent Crude is currently trading at $78.80 a barrel, down 0.8% from 12 months ago.

Meanwhile, the pound strengthened in September, reaching $1.34 towards the end of September before falling; this time last year, the pound was trading at $1.22. Against the euro, the lira reached 1.20 euros, after starting the year around 1.15 euros.

In basic terms, a stronger currency tends to make imports cheaper, but increases the price of exports. The UK depends on many imports of goods, particularly food and energy, and still ran a ‘trade deficit’ of nearly £60 billion in goods – importing more than it exports – in Q2 2024. The UK has a trade of £40 billion. surplus in services, however.

On 1 October, Ofgem’s price cap was lifted for domestic energy prices, so gas and electricity bills will rise again. This effect should be noticeable in October’s headline inflation data, which is due in mid-November.

Inflation in the UK peaked above 11% in 2022 and has fallen sharply since then. Bank of England interest rates rose from 0.1% in December 2021 to 5.25% in August 2023. Global central banks have cut interest rates this year as inflation eased, the US Federal Reserve, the European Central Bank and the England all down. adjustments.