2021.10.2011:37:00UTC+00UK Inflation Slows Unexpectedly

UK consumer price inflation slowed unexpectedly in September largely due to strong base effects, the Office for National Statistics said Wednesday.

Consumer price inflation slowed slightly to 3.1 percent from 3.2 percent in August. Economists had forecast the rate to remain unchanged at 3.2 percent.

On a monthly basis, the consumer price index gained 0.3 percent, following August's 0.7 percent increase. Prices were forecast to grow 0.4 percent.

Core inflation that excludes energy, food, alcoholic beverages and tobacco, slowed to 2.9 percent from 3.1 percent in the previous month.

Restaurants and hotels made large downward contribution to the consumer price inflation, data showed.

The ONS said the large downward contribution to change from restaurants and hotels is a base effect, in part because of the recovery of restaurant and cafe prices in September 2020 following August's Eat Out to Help Out scheme.

Over the weekend, BoE Governor Andrew Bailey said the bank will have to act over rising inflation, raising expectations for a rate hike this year. Bailey said rising energy prices would push inflation higher and last longer than expected earlier.

The dip in CPI inflation in September feels a bit like the lull before the storm inflation is expected to jump to close to 4.0 percent in October and to between 4.5 percent and 5.0 percent by April next year, Paul Dales, an economist at Capital Economics, said. As such, the fall in September probably would not deter the Bank of England from raising interest rates from 0.10 percent in the coming months, although the markets have gone too far by pricing in rates rising to 1.00 percent next year, the economist noted.

"While inflation is uncomfortably high, the Bank of England must hold its nerve on interest rates," Suren Thiru, head of economics at the British Chambers of Commerce, said. Raising rates at a time of escalating cost pressures and looming tax rises would severely undermine an already fragile recovery.

Another report from the ONS showed that output price inflation accelerated to 6.7 percent in September from 6 percent. Nonetheless, the rate was slightly weaker than the 6.8 percent economists had forecast.

On month, output prices gained 0.5 percent but weaker than the prior month's 0.7 percent increase. Prices were forecast to climb 0.5 percent. At the same time, input prices grew at a faster pace of 11.4 percent in September following the 11.2 percent rise in August. Economists had forecast the rate to ease to 11.6 percent.

Month-on-month, input prices moved up 0.4 percent versus 0.5 percent a month ago, while economists forecast the rate to advance to 1 percent.

In a separate communiqu?, the ONS said average house price inflation increased to 10.6 percent in August from 8.5 percent in July. With the 7.5 percent increase, London continued to be the region with the lowest annual growth for the ninth consecutive month.

The average UK house price was GBP 264,000 in August, which was GBP 25,000 higher than this time last year.