UK inflation holds steady at 6.7%, pound gains amid economic uncertainty

The United Kingdom’s inflation rate remained at 6.7% in September, surprising analysts who had predicted a slight decline to 6.6%. The steady inflation figures, released by the Office of National Statistics, have led to a modest rise in the pound’s value against the dollar.

The British pound (GBP/USD) marked a 0.19% increase against the US dollar, trading at $1.2205, following the release of the inflation data. Despite this marginal increase, economists and analysts remain cautious about the country’s economic outlook.

Analysts at ING expressed their views, stating, “Despite marginally beating consensus, there is probably nothing in this inflation report that would push the Bank of England into another hike in November.” The Bank of England, which kept interest rates at 5.25% in September due to an unexpected drop in August’s inflation rate, is expected to maintain this rate in the upcoming November meeting.

The inflation report revealed that a surge in fuel prices between August and September contributed to the upward pressure on the annual inflation rate. Nicholas Hyett, an Investment Analyst at Wealth Club, noted the intricate dynamics of the situation. “September’s inflation numbers present a messy picture. Food prices have fallen, while domestically exposed sectors like restaurants and hotels have seen prices rise. Higher prices for motor fuel are also having an effect.”

Hyett emphasised the challenges faced by policymakers, stating, “No-one wants inflation to remain stuck where it is for an extended period. If the Bank thinks that’s a danger, they may well feel their only option is to set rates on an upwards trajectory once again.”

The United Kingdom, currently experiencing the highest inflation among G7 advanced economies, is also anticipated to have the slowest economic growth next year, according to recent projections by the International Monetary Fund (IMF).

Prime Minister Rishi Sunak has made a bold pledge to halve inflation by the end of the year. This commitment comes at a crucial time when many British households are grappling with a sharp decline in their standard of living, exacerbated by wages struggling to keep up with soaring prices.