UK has highest inflation in G7 after CPI fails to fall in September – business live

UK tenants continue to be squeezed by rising rents.

The ONS reports that private rental prices paid by tenants in the UK rose by 5.7% in the 12 months to September, up from a revised 5.6% in the year to August.

That is the largest percentage increase since the ONS started collecting this data in January 2016.

It adds:

• Annual private rental prices increased by 5.6% in England, 6.9% in Wales, and 6.0% in Scotland in the 12 months to September 2023.

• Within England, London had the highest annual percentage change in private rental prices in the 12 months to September 2023 at 6.2%, while the North East saw the lowest at 4.7%.

• London’s annual percentage change in private rental prices was at its highest annual rate since the London data series began in January 2006.

The jump in interest rates, making house purchases unaffortable for many, has added to the pressure on the rental market.

The latest house price inflation data is out, showing prices rose by the smallest amount in a decade in August.

The Office for National Statistics reports that average UK house prices rose by 0.2% per year in August, the smallest rise since April 2012.

At first glance, it’s surprising to see that house prices rose at all – as lender Nationwide reported they fell by 5.3% in the year to August.

But, the ONS data includes cash buyers, as well as those taking out a mortgage.

The ONS says the average UK house price was £291,000 in August 2023.

That’s £9,000 above the recent low point in March 2023, but below the record high of £292,000 last November.

It adds:

• Average house prices over the 12 months to August 2023 remained little changed in England to £310,000 (0.0%), decreased in Wales to £217,000 (negative 0.1%) and increased in Scotland to £194,000 (1.1%).

• Average house prices increased by 2.7% to £174,000 in the year to Quarter 2 (Apr to June) 2023 in Northern Ireland.

• The North East saw the highest annual percentage change of all English regions in the 12 months to August 2023 (3.6%), while the East of England saw the lowest (negative 1.6%).

UK firms are bracing for a jump in costs next year, if the government uses today’s inflation data to set business rates.

Commercial real estate intelligence firm Altus Group has calculaed that the business rates bills will rise by £1.95bn in England next April, if ministers stick to their plan of using September’s CPI rate to set the rise.

Of that, £415m will be shouldered by “the embattled retail sector”, Altus warns.

Jacqui Baker, head of retail at RSM UK, warns that some businesses won’t be able to meet higher rates, saying:

‘The current business rates regime is already crippling retailers, so the prospect of a £1.95bn jump in rates next April will be impossible for some retailers to find.

The Chancellor needs to extend the current relief measures for another year whilst delivering real reform that is fit for purpose to allow the high street to not only survive, but to thrive.’

Trade body UKHospitality has calculated that hospitality businesses would face an additional £234m in business rates.

They also warn that hospitality firms could face an extra £630m of costs if the government ends the current business rates relief for the sector in April.

The oil price, one of the factors keeping UK inflation high in September, has risen this morning.

Brent crude is up 1.6% at $91.41 per barrel, after a blast at a Gaza hospital that left hundreds of Palestinians dead and caused concerns about global oil supply disruption.

Full story: UK inflation unexpectedly holds steady at 6.7%

Richard Partington

UK inflation unexpectedly held steady in September at 6.7% as soaring fuel costs offset the first monthly fall in food prices for two years to maintain pressure on households amid the cost of living crisis.

The Office for National Statistics said the annual inflation rate as measured by the consumer prices index remained unchanged from August’s reading, raising questions over the Bank of England’s next decision on interest rates in November. City economists had forecast a modest fall to 6.6%.

Food and non-alcoholic drink prices fell by 0.2% on the month – the first monthly decline since September 2021 – helped by fierce competition among supermarkets driving down prices for milk, cheese and eggs, as well as mineral water, soft drinks and juices.

However, prices remain significantly higher than a year ago, with the cost of an average food shop still up by more than 12% on an annual basis.

Highlighting the pressure on households, the ONS said a surge in petrol and diesel prices contributed to almost all of the upward pressure on the inflation rate, amid a sharp rise in global oil costs over recent months.

The chancellor, Jeremy Hunt, said:

“As we have seen across other G7 countries, inflation rarely falls in a straight line, but if we stick to our plan then we still expect it to keep falling this year. Today’s news just shows this is even more important so we can ease the pressure on families and businesses.”

More here:

Several City economists are predicting the Bank of England will leave interest rates on hold at 5.25% next month, despite inflation failing to fall in September.

James Smith, developed markets economist at ING, says:

UK inflation has come in a little higher than expected, but given the surprise isn’t huge and some of it can be put down to volatile package holidays, we don’t think there’s enough here to tempt the Bank of England into resuming its rate hike cycle in early November….

Smith also predicts a fall in headline inflation in October, as last year’s steep increase in household energy bills drops out of the annual comparison.

With food inflation slowing too, we headline CPI to dip to 5% or below in October and stay broadly unchanged until the end of the year, though this partly depends on what happens to oil prices.

RSM UK’s economist Thomas Pugh also predicts the Bank’s monetary policy committee will keep interest rates on hold at 5.25% at its meeting next month, as they also did in September.

Pugh says:

We continue to think that inflation will continue to decline from here as lower energy and goods prices continue to feed through. What’s more, growing slack in the labour market as labour supply improves, and demand for labour to ease a little should reduce wage growth over the next year, limiting the risk of a wage-price spiral. October will bring the next big drop, as the 2022 increase in household energy bills falls out of the annual comparison and is replaced by lower prices this year.

Overall, today’s data largely vindicates the MPC’s decision to hold interest rates at 5.25%. If inflation registers a big fall in October, as we expect, the case for further tightening will become even weaker.

Rob Morgan, chief investment analyst at Charles Stanley Direct, says the BoE is likely to continue to pause rates for the time being to consider more economic and inflation data.

However, the stubbornness of UK inflation is a “reality check” for the Bank, Morgan says:

Today’s data highlights the stubbornness of UK inflation, especially energy costs and services which will keep the Bank of England on its toes about the possibility of further interest rate hikes.

The City money markets currently indicate there’s a 77% chance that the Bank leaves rates on hold at 5.25% in November, with a 23% chance of a rise to 5.5%.

City consultancy Capital Economics has some good news for households – and chancellor Jeremy Hunt.

They predict that inflation will tumble in a month’s time, due to the drop in energy bills this month.

Paul Dales, their chief UK economist, explains that this will help the government hit its goal of halving inflation this year.

He says:

The pre-announced decline in the Ofgem price cap, which kicked in on 1^st October, will subtract a huge 1.3ppts from CPI inflation.

That means CPI inflation will be pretty close to 5.0% in October and on track to fall below the 5.1% rate that would mean the Chancellor can successfully say inflation has halved this year.

Capital Economics predict inflation will continue to fall next year too, to average around 2.0% in 2024.

But they warn….

The recent jump in the oil price to $92 per barrel and the 35% leap in the natural gas price since the conflict in the Middle East began generates a clear risk that inflation will fall more slowly, perhaps to an average of 3.0%.

Today’s inflation report confirms that the UK has the highest inflation rate of any G7 country.

Prices are rising slower in other major advanced economies, as this table of the latest CPI inflation rates shows:

• US: 3.7% in September

• Canada: 3.8% in September

• Germany: 4.5% in September

• France: +4.9% in September

• Italy: +5.3% in September

• Japan: +3.2% in August (we get September’s inflation report on Friday)

Some economists have warned that the UK economy suffered a double-whammy. Like the US it has struggled with labour shortages after Covid-19, while it was also hit by the surge in European energy costs after the invasion of Ukraine last year.

Brexit has also been blamed, for creating worker shortgages that pushed up firms’ costs and adding to trade friction at the border, making food more expensive.

Another factor is the UK’s energy price cap, which means bills fall (or rise) on a quarterly basis, with the next drop due in October’s inflation data.

TUC General Secretary Paul Nowak says:

“Bills and prices are still going up – just a bit more slowly than they were a year ago.

“While other countries have acted decisively to reduce cost of living pressures, working families and businesses here remain seriously under the cosh.

“Let’s not lose sight of the bigger picture. The UK is teetering on the brink of recession, with employment falling as companies scramble to cut costs.

“The Conservatives’ lack of a credible economic plan is costing us dear. Britain cannot afford the Tories.”

Chancellor Jeremy Hunt says:

“As we have seen across other G7 countries, inflation rarely falls in a straight line, but if we stick to our plan then we still expect it to keep falling this year.

“Today’s news just shows this is even more important so we can ease the pressure on families and businesses.”

Hunt is right that inflation is an erratic beast. In the US, for example, CPI fell to 3.2% in July, but then jumped back to 3.7% in August before staying there in September.