UK Inflation Highest Since 2012

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The Office for National Statistics (ONS) said that the key drivers of the rise, up from 2.9% in August, were a combination of air fares, fuel, leisure and food costs either rising or falling less than the same month past year.

The latest inflation figures are particularly important because state pension payments from April 2018 will rise in line with September's CPI.

Last month the Bank of England said it expected inflation to exceed 3% in October, higher than it had forecast just a month before, when it predicted it would take more than three years for inflation to return to its 2% target.

'Inflation looks set to fall sharply in 2018, now that retailers have almost completed sterling-related price rises.

A slump in the pound since the Brexit vote previous year, which makes imports more expensive, has contributed to rising inflation though the ONS said increasing global commodity prices could also be a factor.

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"Meanwhile, our pay packets have stagnated with wage growth falling behind inflation, despite United Kingdom unemployment being at a record low".

On an annual basis, prices rose by 3% last month, its highest level since October 2013 when it climbed by 3.9%.

Furniture retailer IKEA Group said earlier it had increased prices in Britain by 3% to compensate for the slump in sterling. The costs of recreation and culture activities also rose, as did fuel prices.

The consumer price index (CPI) hit 3% in September, a level not seen since May 2012, increasing expectations of a November interest rate rise.

However, the impact of the lower exchange rate on inflation is set to ease as the annual change of prices drops out of the comparison. Inflation is then forecast to fall to 2.6% in 2018, before settling at 2.2% in both 2019 and 2020 respectively.

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Core inflation that excludes energy, food, alcoholic beverages and tobacco, held steady at 2.7 percent.

Economists have previously warned the squeeze on households was being exacerbated by subdued wage growth.

"The tick upwards in inflation will increase expectations of a rate rise from the BoE later on this year, stoked by a flurry of hawkish rhetoric coming from Threadneedle Street".

This week, the GBP will be the center of attention watching important data from the United Kingdom in the form of inflation level and labor work numbers, wages, retail sales and comments on the monetary policy from the Bank of England.

Samuel Tombs, chief United Kingdom economist at Pantheon, believes the MPC will only raise rates once in the next year though, with inflation set to peak.

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