The UK's Consumer Prices Index (CPI) inflation rate surged to 3.5% in September, its highest level in almost a year, driven mainly by surging fuel prices. This pre-budget blow will put pressure on Chancellor John Healey and millions of hard-pressed households.
The Office for National Statistics (ONS) reported that transport industry prices, particularly motor fuels, were the biggest contributors to the higher inflation rate. Average petrol and diesel prices reached their highest level in four years in September, the ONS said. Diesel prices rose by 10.7p per litre in September, pushing the average cost of a litre over £2 for the first time.
"This is a notable increase, meaning inflation is at its highest rate in almost a year," said ONS chief economist Grant Fitzner. "The annual cost of both raw materials and goods leaving factories continued to rise, driven by higher crude oil and petrol prices, respectively."
The surge in fuel prices has also pushed up the cost of goods and services, with services price inflation accelerating to 3.
The Bank of England previously warned that inflation would exceed four percent, and the latest figures suggest it may yet prove correct. The UK economy is facing a perfect storm of imported inflation pressures, according to David Rees, chief economist at the EEF manufacturers' organisation.
Chancellor John Healey acknowledged the impact of conflicts in the Middle East and Europe on the economy, promising to maintain fiscal discipline in the upcoming Budget on 28 October. "We know that price rises from conflicts in the Middle East and Europe are hitting Britain and countries worldwide," he said.
The surge in fuel prices has also pushed up the cost of goods and services, with services price inflation accelerating to 3.7% in September, up from 3.4% in August. Core inflation, which excludes volatile components, also picked up, rising to 2.8% from 2.6% in August.
Experts suggest this could put pressure on the Government to unveil new cost-of-living support measures in the upcoming autumn Budget statement. As the UK prepares for the autumn Budget, the government will need to balance its commitment to fiscal discipline with the need to provide support to those hardest hit by the rising cost of living.
