UK inflation slows in September

Consumer prices in the UK rose by 3.1% in the 12 months to September 2021, down from 3.2% in August, according to the latest monthly figures.

Higher prices for transport were the biggest contributor to price rises, while a downward contribution came from the unwinding effect of last year’s ‘Eat Out to Help Out’ scheme, the Office for National Statistics (ONS) said.

Commenting on the monthly data, the British Chambers of Commerce (BCC) said that the dip in the Consumer Prices Index (CPI) reflected “temporary data distortions rather than the reality on the ground”.

“The slowdown was largely due to strong base effects caused by dining out costing less last month in comparison with September 2020, when prices increased following the end of the ‘Eat Out to Help Out’ scheme,” explained Suren Thiru, head of economics at the BCC.

Thiru added that a further inflationary surge is expected in the coming months “with the increase in the energy price cap, partial reversal of the VAT reductions for hospitality and tourism and persistent supply chain disruption”.

And he warned that rising inflation could disrupt the UK’s economic recovery by diminishing people’s spending power and firms’ profit margins.

The Bank of England signalled this week that it would act over rising inflation, suggesting that interest rates may increase soon.

But Thiru cautioned: “While inflation is uncomfortably high, the Bank of England must hold its nerve on interest rates. Raising rates at a time of escalating cost pressures and looming tax rises would severely undermine an already fragile recovery.”