In September, the United Kingdom experienced unexpected stability in inflation, remaining at 6.7%. This outcome surprised economists as they had anticipated a slight drop to 6.6%. Despite a 0.2% monthly decrease in food and non-alcoholic drink prices – the first drop since September 2021 – the average cost of a food shop remained 12% higher than the previous year. Supermarket competition led to lower prices for items like milk, cheese, eggs, mineral water, soft drinks, and juices.
The main contributor to inflation pressure was the surge in petrol and diesel prices, caused by a sharp rise in global oil costs. Chancellor Jeremy Hunt acknowledged the challenge, emphasizing the importance of adhering to the government’s plan to ease financial burdens on families and businesses.
This stability in inflation raised questions about the Bank of England’s upcoming decision on interest rates in November. The central bank had recently paused its aggressive cycle of rate increases, and financial markets expected the rates to remain unchanged. Despite the stable inflation rate, economists believed that inflation would likely decrease to below 5.1% by December, fulfilling Chancellor Rishi Sunak’s commitment to halve the rate for the year. However, concerns emerged due to potential disruptions in the Middle East, especially related to the Israel-Hamas conflict, which could restrain the decline in inflation next year, leading to prolonged high prices for consumers.
Traditionally, the September inflation rate is used to adjust benefit values in the following April. However, Rishi Sunak’s hesitation in committing to this adjustment raised concerns. Speculation arose that the government might consider a below-inflation increase in benefits due to tight public finances. Advocates for low-income families, like Alfie Stirling from the Joseph Rowntree Foundation poverty charity, expressed dissatisfaction, emphasizing the need for certainty regarding benefit payments to help families recover from the significant real terms losses experienced over the past two years.