Inflation in Britain has hit 3 per cent for the first since early 2012, official figures showed today — a development that reinforces expectations that the Bank of England will raise interest rates next month for the first time in a decade. The Office for National Statistics said consumer price inflation was 3 per cent in the year to September, up from the previous month’s 2.9 per cent. The increase, which brings the rate to its highest level since March 2012, was widely anticipated in the markets and was largely due to rising prices for food and a range of transport costs. If it had risen any further, Bank of England Governor Mark Carney would have to write to Treasury chief Philip Hammond explaining why inflation is more than a percentage point above the 2 percent target and what he and his colleagues at the central bank were going to do about it. Though he’s spared that letter-writing, Carney and the others on the bank’s rate-setting panel are expected to raise the benchmark rate by a quarter point from the record low of 0.25 per cent at the next policy meeting on November 2.
September’s inflation figures were the last before the meeting, giving the numbers even more clout. After the last meeting, when seven of the nine panel members voted for unchanged rates, Carney put financial markets on notice that interest rates were likely to rise in the “coming months.” “Today’s release has all but rubber-stamped a rate hike from the central bank at their next meeting,” said David Cheetham, chief market analyst at online trading firm XTB. The expected rise in rates comes despite signs that the British economy is faltering — it is growing slower than any other Group of Seven industrial economy this year — and that inflation is expected to ease back down in coming months. The pound was little changed by the inflation numbers as most investors have already priced in a likely November rate hike. In late-morning trading, it was up 0.1 percent at $1.3268.
One of the main reasons why inflation has spiked over the past year is related to the pound’s sharp fall since the country voted to leave the European Union in June 2016. The 15 per cent or so drop in the pound against a range of currencies has ratcheted up the cost of imported goods such as food and energy. Inflation has actually trebled in the year from September 2016, when inflation was just 1 per cent. However, the impact of the lower exchange rate on inflation is set to ease as the annual change of prices due to the pound’s decline drops out of the comparison.