The U.K. saw its highest inflation rate in nearly a year, driven by soaring fuel prices amid the 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 plans to address rising living costs in his budget statement next week, aiming to provide relief for businesses and families. Despite potential measures, economists anticipate the Bank of England will raise interest rates at its November 5 meeting. The bank’s main rate has been held at 3.75%, but signals suggest an increase to 4% is likely.
Other central banks, including the U.S. Federal Reserve and the European Central Bank, have also raised rates recently. The U.K.’s interest rates had been decreasing from a 15-year high of 5.25% until the U.S. and Israel attacked Iran in late February. Suren Thiru, chief economist at ICAEW, noted that inflation trends support a rate hike in November.