The U.K. is facing its highest inflation rate in nearly a year, driven by soaring fuel prices amid the ongoing Iran war. The Office for National Statistics reported that consumer prices rose by 3.5% in the year to September, up from 3.1% in August. This surpasses the Bank of England’s 2% target and exceeds economists’ expectations of 3.4%.
The transport sector, particularly motor fuels, was the biggest contributor to inflation. Fuel prices surged by 30% annually in September, up from a 23% rise in August. The conflict in Iran and disruptions in the Strait of Hormuz have tightened global oil and gas supplies, pushing costs higher.
Treasury chief John Healey has promised to address the rising cost of living in his upcoming budget statement, aiming to provide relief for businesses and families. However, economists widely anticipate that the Bank of England will raise interest rates at its next meeting on November 5, with most predicting a hike to 4%.
Interest rates in the U.K. had been declining from a 15-year high of 5.25% until the U.S. and Israel attacked Iran in late February. Other central banks, including the U.S. Federal Reserve and the European Central Bank, have also recently raised rates in response to inflationary pressures.