UK inflation held steady at 3.8% in September, defying expectations of a rise. This matches the rate recorded in August, with most economists and the Bank of England anticipating a climb to 4%.
Inflation measures the change in prices of goods and services over time, indicating that prices are now on average 4% higher than a year ago. The Office for National Statistics (ONS) reports monthly inflation data, attributing the 3.8% figure in September to transport costs remaining elevated, particularly due to petrol and airfare prices not decreasing as much as the previous year.
Conversely, prices of food and non-alcoholic beverages decreased, along with ticket prices for live events. The inflation rate for September plays a crucial role in determining adjustments to state pension and welfare benefits by the following April.
The triple lock mechanism ensures the state pension rises annually based on the highest of earnings growth between May and July, September inflation rate, or a minimum of 2.5%. With wage growth at 4.8% for May to July surpassing September’s inflation rate, pension adjustments will align with this higher figure.
Grant Fitzner, ONS Chief Economist, noted that various price movements balanced out in September, with petrol and airfare costs offsetting by lower prices for recreational and cultural activities, alongside reduced expenses for food and beverages.
Chancellor Rachel Reeves expressed dissatisfaction with the current inflation figures, emphasizing the need to address economic stagnation and support individuals facing rising living costs. Inflation signifies the increase in prices, where a 4% inflation rate implies an item priced at £1 a year ago would now cost £1.04.
Although lower inflation doesn’t signify a price freeze, but rather a slower rate of increase, the ONS uses a basket of goods and services to calculate the average inflation figure seen in headlines.
The Bank of England targets a 2% inflation rate, having adjusted interest rates over nearly two years to curb inflation. Higher interest rates aim to reduce borrowing and spending, thereby decreasing demand and subsequently, prices to lower inflation.
Following a peak base rate of 5.25% in August 2023, it has been reduced five times to the current 4%. Inflation rose through 2021, hitting 11.1% in October 2022 primarily due to surging energy and food costs post-Covid, further exacerbated by the conflict in Ukraine.
In September 2024, inflation hit a three-year low at 1.7%, but started edging up in October.