United Kingdom: Inflation falls back in September
October 17, 2018
Consumer prices rose 0.1% in September over the previous month, down from August’s 0.7% rise. September’s figure was underpinned by higher prices for clothing and footwear; and education, which were partially offset by lower prices for food and non-alcoholic beverages; and transport.
Inflation in September fell to 2.4% from 2.7% in August, moving back towards the Bank of England’s (BoE) 2.0% target and undershooting analysts’ expectations of a decline to 2.6%. Core inflation—which excludes food and energy costs—also decreased. September’s figure suggests that August’s surprise uptick in inflation was simply noise, and not the start of a more sustained upturn in price pressures.
Looking ahead, the general trend for inflation is likely to be downward, as external factors which have generated price pressures in recent months—such as higher fuel prices and sterling weakness—fade. However, rising domestic cost pressures due to limited economic slack will likely slow inflation’s return to the BoE’s target.
UK Inflation Forecast
According to the August Inflation Report, the Bank of England sees inflation dipping to 2.3% in Q4 2018 and 2.2% in Q4 2019. FocusEconomics Consensus Forecast panelists expect inflation to average 2.1% in 2019 and 2.0% in 2020.
Author: Oliver Reynolds, Economist