Inflation in the U.K. rose to its highest rate in almost a year as the Iran war continues to ratchet up fuel prices, official figures showed Wednesday, cementing market expectations that the Bank of England will raise interest rates next month.
The Office for National Statistics said consumer prices rose by 3.5% in the year to September, up from 3.1% in August. That’s the highest reading since October last year, and above the 3.4% that most economists had been expecting for the month.
The increase takes inflation further above the Bank of England’s target rate of 2%.
Prices across the transport industry were the biggest contributor to higher inflation last month, particularly at the pump. Overall, motor fuels soared by 30% in the year to September, up from a 23% annual rise in August.
Fuel costs have been soaring because of the Iran war and the ensuing bottlenecks in the Strait of Hormuz, which have squeezed global oil and gas supplies.
Treasury chief John Healey said his budget statement next week will aim to give businesses and families “some breathing space” from the upward march in the cost of living.
Whatever measures he comes up with to keep a lid on rising prices, economists expect the Bank of England to increase interest rates at its next meeting on Nov. 5. Last month, rate-setters held the bank’s main rate at 3.75% but gave a big hint that they were ready to hike soon.
“With inflation increasing, the pieces are falling firmly into place for a November rate rise,” said Suren Thiru, chief economist at ICAEW.
Most economists expect an increase in the bank’s main rate to 4%. Other central banks, including the U.S. Federal Reserve and the European Central Bank, have raised rates recently.
Interest rates in the U.K. had been trending downward from a 15-year high of 5.25% until the U.S. and Israel attacked Iran in late February.