UK consumer inflation increased more than economists had projected in September, with higher petrol and diesel prices driving much of the advance. The data adds pressure on policymakers as markets assess the outlook for interest rates, public finances and household costs.
The pound showed little movement versus the euro and the dollar after the figures were released. UK government bond yields were also broadly unchanged, indicating a muted immediate market response.
Annual inflation reached 3.5% in September, according to figures published Wednesday by the Office for National Statistics. Economists surveyed by Reuters had expected the rate to come in at 3.4%.
The latest reading extended a recent increase in price growth. Inflation stood at 3.1% in August and 2.9% in July, making September’s rate the highest in nearly 12 months.
Fuel costs were the main upward force in the September inflation data, the ONS said. Motor fuel prices in the UK were 29.8% higher than a year earlier.
Energy markets have been under sustained pressure since late February, when the U.S. and Israel began their war on Iran. Restrictions on most fossil fuel shipments through the Strait of Hormuz have pushed Brent crude above $100 a barrel, with the benchmark currently near $110.
The increase has fed through to drivers. Petrol has moved above GBP 1.70 a litre, while diesel rose to more than GBP 2 a litre earlier this month, a record level, before easing slightly.
The UK’s dependence on imported energy leaves it exposed to global supply disruptions, including the effects of the U.S.-Iran war and the constraints on oil movements through the key waterway.
Fuel costs also affected travel prices. Air fares fell in September, but by less than is normally seen after the summer travel period, reflecting the influence of higher aviation fuel costs.
Other components offered some offset. Clothing prices declined slightly, while food inflation held at 1.3%. Competition between supermarkets helped limit the impact of rising transport expenses on food prices.
The inflation data also arrives at a difficult moment for the government’s fiscal planning. Chancellor of the Exchequer John Healey is due to present his first major fiscal package next week in the Autumn Budget.
Healey is expected to work within the fiscal framework inherited from the previous government, which is intended to limit public debt. At the same time, the government has pledged to help reduce the pressure on consumers from rising living costs.
Separate figures released Wednesday showed UK national debt was estimated to have moved above GBP 3 trillion in September for the first time. Debt interest costs have increased sharply over the past year, while economic growth remains weak.
Bank of England officials are widely expected to raise interest rates at next month’s meeting. Policymakers are facing forecasts that inflation could move above 4% next year, more than twice the central bank’s 2% target, as higher oil and gas costs feed into a broader range of prices, including commercial transport and domestic heating.
