NEWS
17/10/2017 12:52 BST

Inflation Hits Five-Year High As Food And Transport Costs Blamed

The fall in the value of the pound since Brexit sees cost of goods go up.

The UK’s inflation rate surged to a five-year high in September as rising food and transport costs upped the financial pressure on struggling households while Brexit uncertainty caused the sterling to slide.

Figures from the Office for National Statistics (ONS) on Tuesday showed the Consumer Price Index (CPI) measure of inflation rose to 3% last month, up from 2.9% in August.

The increase was in line with expectations but it matches the level of April 2012. It was last higher in March that year when it reached 3.5%.

Households have been feeling the pinch as the Brexit-hit pound bumps up everyday prices and wage growth tracks behind inflation.

What Is Behind The Rise? 

ONS head of inflation Mike Prestwood said food prices and a range of transport costs “helped push up inflation in September”.

“These effects were partly offset by clothing prices that rose less strongly than this time last year.”

The fall in the pound since last year’s Brexit vote has also impacted inflation. 

The jump in CPI leaves Bank of England Governor Mark Carney on the brink of having to write a letter to Chancellor Philip Hammond explaining why inflation is rising so rapidly, the Press Association suggested. 

Speaking in Westminster after the announcement Carney it was “more likely than not” that he would be writing to the Chancellor. 

The Government has set an inflation target of 2%, with protocol dictating that Carney must contact the Chancellor if inflation exceeds 3% or falls short of 1%.

Bloomberg via Getty Images
Bank of England Governor Mark Carney has said it is 'more likely than not' that he will write to Chancellor Philip Hammond 

Focusing on CPI, the Office for National Statistics said food and non-alcoholic drinks rose by 0.8% month-on-month in September after falling by 0.1% over the same period last year.

On an annual basis, prices rose by 3% last month, its highest level since October 2013 when it climbed by 3.9%.

Transport costs also put upward pressure on the headline rate in September after recording a smaller month-on-month fall of 1.3% in contrast to a drop of 2.3% in 2016.

Fuel prices also pushed higher, with petrol and diesel both stepping up by 2.5p on the month to 118.2p and 120.1p respectively.

The Consumer Price Index, including owner-occupiers’ housing costs (CPIH), was 2.8% in September, up from 2.7% in August.

CPIH is the ONS’s preferred measure of inflation, which includes costs associated with living in, maintaining and owning a home.

Winners

Pensioners can look forward to a 3% increase in the basic state pension next April - their largest increase for six years.

Under the triple-lock system, pensions rise in line with earnings growth, September’s CPI reading, or by 2.5%, whichever number is biggest.

Those on the new state pension, the BBC said, would see their weekly income rise to £164. At the moment, the full new state pension is £159.55 per week. 

Losers - Everyone Else

Workers

The rise in inflation means British workers are continuing to be hit in the pocket with average wages only rising by 2.1% per year in the three months to July. 

The Guardian called the graph below “one of the most depressing charts in UK economics today”.

The TUC, which represents millions of British workers, on Tuesday urged the Government to act to stop UK households from hurting and reiterated its desire for the public section pay cap to be ditched. 

TUC General Secretary Frances O’Grady told the Guardian: “The government needs to face up to Britain’s cost of living crisis. The squeeze on household budgets is getting tighter by the month.”

The Resolution Foundation said today’s figures mean that the pay freeze is “currently biting hardest for those in the public sector”. 

O’Grady said Chancellor Philip Hammond must use next month’s budget to ease “pressure” on struggling families. 

“That means giving five million public sector workers the pay rise they have earned.

“Prices are sky-rocketing. Offering hard-working public servants below-inflation increases would amount to yet another real-terms pay cut.”

Home Owners

The increase in inflation is expected to lead to an increase in interest rates meaning the cost of mortgages will increase. 

O’Grady urged the Bank Of England not to raise interest rates from the current low of 2.25% arguing that the British economy is “simply not strong enough” to cope”. 

She said it would be a “big mistake” to increase interest rates before wages.

Beneficiaries 

Like workers wages, benefits are not keeping pace with inflation, meaning the poorest Brits will find it even harder to get by next year - even if they are in work.

The Resolution Foundation said that low-income working families with two kids will lose more than £300 pounds next April.  

Other reports suggested beneficiaries could lose £450. 

Small Businesses 

The Retail Price Index (RPI), which is used to set next year’s business rates, was unchanged last month at 3.9%.

Despite coming in shy of expectations, the rate still ensures businesses face a hefty tax hike in 2018 on top of the £23.9 billion the Government is expected to haul in from English firms this year.

The Federation of Small Businesses said the rate follows “six months of business rate misery”.

FSB’s national chairman details that misery to the Guardian: “Since April’s bruising revaluation we’ve had the staircase tax, introduction of an unworkable appeals platform and chronic delays to the Chancellor’s £435 million relief package. A near four per cent bill increase next April, on top of losing year one transitional caps, will be the last straw for many.”