UK Consumer Prices Rise Less Than Forecast

(RTTNews) - UK consumer prices rose less than expected and food inflation eased for the first time in six months in September, raising hopes that the Bank of England could reduce interest rates this year.

Consumer prices logged an annual growth of 3.8 percent in September, the same rate of increase as seen in August, the Office for National Statistics said Wednesday. Prices were expected to climb at a faster pace of 4.0 percent.

Meanwhile, core inflation eased marginally to 3.5 percent from 3.6 percent in August.

Services inflation held steady at 4.7 percent and overall goods prices rose at a pace of 2.9 percent, which was the fastest since October 2023. However, food inflation eased for the first time since March, to 4.5 percent.

While transport made the largest upward contribution to annual inflation, recreation and culture and food prices made the largest offsetting downward contributions, the ONS said.

On a monthly basis, overall consumer prices and core consumer prices remained flat in September. Another report from the ONS showed that input prices dropped unexpectedly by 0.1 percent in September, while the expected rate was +0.3 percent. Similarly, output prices remained flat compared to the forecast of 0.2 percent rise.

Year-on-year, input prices gained 0.8 percent and output prices moved up 3.4 percent in September.

Earlier, the BoE had projected inflation to peak at 4.0 percent in September before easing to the 2 percent target through next year.

The BoE had reduced the interest rate five times since August 2024 to the current level of 4.00 percent, which was the lowest since early 2023.

Although lower-than-expected CPI inflation provides some reassurance that it is at the peak, the picture is mixed, British Chambers of Commerce Head of Research David Bharier said.

Core inflation has eased but the reintroduced producer price data show factory gate prices rising by 3.4 percent, hinting that cost pressures remain in the pipeline, particularly for food and manufacturing, Bharier noted.

"Price pressures should begin to slowly ease in the coming months, but we are unlikely to see a more substantial downshift in inflation until the first half of next year," Confederation of British Industry Principal Economist Martin Sartorius said.

Today's downside surprise raises the possibility that a rate cut by the BoE could be back on the table in November, added Sartorius.