A resurgent oil price and embattled sterling appear to have started feeding through to the UK economy, with inflation hitting a 22-month high of 1 per cent in September.
The consumer prices index (CPI) measure for the 12-months to September exceeded expectations of 0.9 per cent, and follows 0.6 per cent rise last month.
The Office for National Statistics (ONS) attributed the September figure – which reached a level not seen since November 2014 – predominantly to rising prices for clothing, overnight hotel stays and motor fuels, and steadier prices for gas as previous falls fell out of the measurement period.
These pressures were partially offset by a fall in air fares and food prices but not enough to prevent the 40 basis point rise. The upward shift follows a notable fall in the value of sterling amid Brexit-related concerns, as well as signs of a recovery in the oil price.
The ONS resisted suggesting the sharp rise in inflation was as a result of the sterling collapse witnessed since June 23. The body said while a sharp rise in clothing cost was higher than between August and September in 2015, it was still in line with trends.
The ONS added: "While the depreciation in sterling is likely to increase the cost of importing goods and outsourcing production, there are reports of businesses having measures in place to protect against exchange rate changes in the short-term."
However, Laith Khalaf, a senior analyst at Hargreaves Lansdown, suggested the ONS's September's figure could be understating actual inflation, given currency movements since the data was collected earlier in the month. Sterling has approximately moved from $1.30 to $1.21 and €1.15 to €1.10, since the ONS collated prices, which oil has risen from around $46 to $51.
Pantheon Economics chief UK economist Samuel Tombs said almost half the September rise reflected a pick up in energy prices, with petrol costs rising 1.4 per cent compared to a 2.6 per cent fall in August.
He predicted a further 1 percentage point rise by early 2017, given a 50 basis point increase from fuel costs and the same from food prices, despite the latter falling 2.4 per cent in September.
Mr Tombs added: "CPI inflation likely peak at 3.5 per cent at the end of 2017, more than “a bit” of an overshoot of the inflation target that [Bank of England (BoE)] governor Mark Carney has said he is happy to tolerate.
"A sharp weakening in GDP growth over coming quarters likely will still persuade the Monetary Policy Committee to cut interest rates by a token amount in February, but high inflation will ensure QE isn’t extended next year."
However, Shilen Shah, a bond strategist at Investec Wealth and Investment, described the September figures as “a confirmation that the long period of low inflation is over” and suggested immediate BoE action would be muted.
“Mark Carney’s comments last week are, however, a confirmation that the BoE will not react to the data, as it continues to view the currency’s fall as a shock absorber to the uncertainty created by the Brexit vote."
