Home · Business · Sep 16 archive
UK inflation inches higher on rising fuel bills
Confirmed
In Short: UK inflation has edged above 3%, driven by rising energy costs, according to the Office for National Statistics.
In a recent report, the Office for National Statistics (ONS) announced that consumer price index (CPI) inflation in the 12 months to August was 3.1%, up from 2.9% the previous month. This marks the highest level in five months, driven primarily by a 7% month-on-month rise in fuel costs. According to the ONS, the rise in energy prices suggests that inflation could reach 3.6-3.7% over the winter.
The Bank of England, however, is more concerned about whether the energy shock is broadening to other parts of the inflation basket. The bank's 'core services' metric, which excludes volatile and indexed categories, is tracking slightly higher than the headline services index, which remained at 3.4% in August. This indicates that the energy price increase is not yet spilling over into other sectors.
Capital Economics noted that the effect of higher oil prices has not yet spilled over into other areas such as food and drink, where the pace of inflation remained at 1.3% in the year to August. However, the ONS expects petrol and diesel prices to rise by another 3-4% in September, which could lift headline inflation to 3.4% in the next month's data.
The government is cutting VAT on household electricity bills from 5% to zero on October 1, saving a typical household about £45 a year. However, Yael Selfin, chief economist at KPMG, warned that this VAT cut will only partially offset the impact of higher gas prices, which have been rising due to the Iran war and disruption to global supplies, including liquefied natural gas.
Inflation is also being driven by rises in petrol, diesel, and airfares, pushing UK inflation up to its highest level in five months. Motor fuel prices rose by 23% compared to August last year. The ONS expects food inflation to rise as the full effect of the Iran war feeds through, but for now, it has slipped to 1.1% year-on-year.
The risks to oil prices remain high, as stockpiles draw down quickly and demand destruction is the only real lever left to bring the market back into balance. This has led to higher bond yields and a 92% probability that the Federal Reserve will raise rates, according to reports. Silver and gold prices are also trading higher, with silver up 1.93% and gold inching upwards as high oil prices continue to fuel inflation concerns.
What's confirmed
- In a recent report, the Office for National Statistics (ONS) announced that consumer price index (CPI) inflation in the 12 months to August was 3.1%, up from 2.9% the previous month. This marks the highest level in five months, driven primarily by a 7% month-on-month rise in fuel costs. According to the ONS, the rise in energy prices suggests that inflation could reach 3.6-3.7% over the winter.
- The Bank of England, however, is more concerned about whether the energy shock is broadening to other parts of the inflation basket. The bank's 'core services' metric, which excludes volatile and indexed categories, is tracking slightly higher than the headline services index, which remained at 3.4% in August. This indicates that the energy price increase is not yet spilling over into other sectors.
- Capital Economics noted that the effect of higher oil prices has not yet spilled over into other areas such as food and drink, where the pace of inflation remained at 1.3% in the year to August. However, the ONS expects petrol and diesel prices to rise by another 3-4% in September, which could lift headline inflation to 3.4% in the next month's data.
- The government is cutting VAT on household electricity bills from 5% to zero on October 1, saving a typical household about £45 a year. However, Yael Selfin, chief economist at KPMG, warned that this VAT cut will only partially offset the impact of higher gas prices, which have been rising due to the Iran war and disruption to global supplies, including liquefied natural gas.
- Inflation is also being driven by rises in petrol, diesel, and airfares, pushing UK inflation up to its highest level in five months. Motor fuel prices rose by 23% compared to August last year. The ONS expects food inflation to rise as the full effect of the Iran war feeds through, but for now, it has slipped to 1.1% year-on-year.
- The risks to oil prices remain high, as stockpiles draw down quickly and demand destruction is the only real lever left to bring the market back into balance. This has led to higher bond yields and a 92% probability that the Federal Reserve will raise rates, according to reports. Silver and gold prices are also trading higher, with silver up 1.93% and gold inching upwards as high oil prices continue to fuel inflation concerns.
What's still developing
- It’ll be because energy prices have stayed high for a number of weeks, at which point the Bank’s models are telling them there’s a good chance headline inflation exceeds 4%.
- Since gold pays no yield, higher borrowing costs tend to weigh on its price.
- Investors are expecting Fed Chair Kevin Warsh to tighten the whip against soaring inflation and actually go on to raise interest rates for the first time since 2023.
- Commenting on inflation, shadow chancellor Andrew Griffith said the government's "jobs tax and employment red tape are being passed on to consumers in the weekly shop and their mad energy policies are pushing up costs and leaving Brits exposed".
- "If gas prices remain around current levels, household energy bills could rise by a further double-digit amount from January, with an even larger increase possible if wholesale prices climb further," she said.