Households squeezed as inflation climbs to 3%
The Consumer Price Index (CPI) rose from 2.9% in August, the Office for National Statistics (ONS) confirmed. This figure was last higher in March 2012.
The main contributors to the uptick in prices were higher costs within the restaurant and hotel sector, recreation and culture, transport, as well as for food and non-alcoholic beverages.
UK consumer price inflation including owner occupiers’ housing costs (CPIH) came in at 2.8% in September, up from 2.7% in August.
With inflation a full percentage point above the Bank of England’s 2% target and the fact it is outpacing wage growth, this may now add further pressure on the governor to raise interest rates.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “The pound in your pocket is depreciating, as the rising price of goods continues to chip away at its value. Consumer spending remains remarkably resilient in the face of inflationary pressures and weak wage growth, but the current squeeze on household budgets is a slow burner, as it takes some time for economic reality to hit home.
“The tick upwards in inflation will increase expectations of a rate rise from the Bank of England later on this year, stoked by a flurry of hawkish rhetoric coming from Threadneedle Street. This wouldn’t be the first time the bank has talked the talk without walking the walk however, so it’s probably best not to count those chickens until they’re hatched.”
He added that inflation has been above this level for around four of the last ten years, and it’s only since 2014 Brits have become accustomed to inflation running below the Bank of England’s 2% target.
Calum Bennie, Scottish Friendly’s savings specialist, said: “Interest rates have to rise to help tackle inflation and the sooner this happens, the better. Mark Carney must recognise the wolves are now at the door and take action to strengthen the pound even though this may increase mortgage costs.
“Consumers have been dealt a double blow of poor income growth and rising shop prices over the past year. For many, this has increased dependency on credit, but with defaults now on the rise it’s clear that many families are finding it nigh on impossible to balance the books. Evidently, it’s not a lending hand they need from the Bank of England right now, but a savings one.”