UK inflation drops sharply and unexpectedly as Brexit price squeeze slows down

  • I nflation in the UK unexpectedly drops in September, as food price increases slow down.
  • Consumer price inflation (CPI), the most watched measure of UK inflation, feel to 2.4%, down from 2.7% in the previous month.
  • The fall is coupled with a rise in average wages for UK workers, which grew by 3.1% in the 12 months to September, the fastest increase since the financial crisis.

The rate of inflation in the UK dropped sharply and somewhat unexpectedly in September, signalling that the surprise rise in prices last month was just a temporary blip in a longer downward trend for inflation in Britain.

The Office for National Statistics (ONS) saidon Wednesday that consumer price inflation (CPI), the most watched measure of UK inflation, feel to 2.4% in September, down from 2.7% in the previous month. CPI had been expected by economists polled prior to the release to drop to 2.6% during the month.

CPIH, the ONS’ preferred method of measuring inflation was also lower in September, falling from 2.4% in August to 2.2%.

“Food was the main downward pull on inflation as last year’s September price rises failed to reappear, while ferry prices dropped after their surprisingly high summer peak,” Mike Hardie, the ONS’ head of inflation said in a statement. “However, it wasn’t all one-way traffic with energy suppliers pushing up their prices.”

Here’s the chart from the ONS of inflation as part of the longer term trend:

Screen Shot 2018 10 17 at 09.49.01ONS

Inflation in the UK had been subdued for several years prior to the vote to leave the EU in June 2016. But the vote caused a fall in the value of the pound, which pushed up inflation.

As the pound has recovered, inflation once again started to fall, dropping from 3% at the end of 2017 to 2.4% in June. It then picked up again in July and August, but now appears to be moving lower once again, signalling that the inflationary impacts of the pound’s fall may be going away.

Wednesday’s data comes just 24 hours after wage figures from the ONS showed pay for UK workers rising by 3.1% in the 12 months to September, the fastest rate of growth since the financial crisis.

“Coupled with the gradual up-tick in wages, the slowing rise in prices will deliver a boost to consumers’ real take-home pay packets, which will also be welcome news for retailers,” Tej Parikh, a senior economist at lobby group the Institute of Directors said.

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