Inflation is back in the UK, according to the latest official figures released on Tuesday morning.
Britain’s Office for National Statistics says the consumer price index — the key measure of inflation in Britain — was up 1% on a year-on-year basis in September, well higher than the consensus forecast of economists of 0.8%, and up from 0.6% in August and July. As a result, inflation has now hit its highest level since late 2014.
Core inflation figures, which strip out volatile goods like oil and food, came in at 1.5%, again above what was expected.
Prior to the last few months, inflation stayed between -0.1% and 0.1% for 10 months due to a collapse in oil prices and a supermarket price war that led to slashed prices. But prices have started to pick up and are expected to keep rising following the Bank of England’s decision to cut interest rates in the aftermath of the UK’s vote to leave the European Union, and the fall in the value of the pound.
Expectations are that inflation will jump sharply in the coming months as the effects of the weaker pound — which has fallen roughly 14% since the Brexit vote, and sits at a 31-year low against the dollar — trickle into the real economy, pushing up the price of goods. As a result, the Bank of England now expects inflation to surpass its 2% target by next year, and has said in the last few days that it will tolerate an overshoot of that target in order to help employment and allow Britain’s economy to grow.
With the pound continuing to decline, some forecasts suggest that inflation could hit 3% in the next year or so — a level not seen in more than four years.