UK inflation unexpectedly cools in September - but analysts say it's the 'lull before the storm'

• UK inflation slowed in September largely due to a measurement quirk, the country's stats office said.
• Economists expect prices to jump before the year is out, as energy prices and supply problems hit the economy.

UK inflation unexpectedly slowed down in September due largely to a measurement quirk, the Office for National Statistics said Wednesday.

Yet analysts said it was most likely a blip, with many predicting that inflation will shoot upwards to a decade high of above 4% before the year is out. One economist said September's figures were "the lull before the storm."

Consumer price index inflation slowed to 3.1% in September from 3.2% in August, the ONS said. Analysts had been expecting another 3.2% figure.

The ONS said this was largely because of "base effects." A meal subsidy scheme launched in August 2020 pushed up year-on-year inflation in August this year. It came to an end in September 2020, which weighed on last month's figures.

There were signs of strong inflation elsewhere. The UK, like countries around the world, has been hit by sharply rising energy prices and supply chain problems. Economists say Brexit is likely to have made the disruption worse.

Factory gate prices - at which manufacturers sell to wholesalers - rose 6.7% year-on-year in September, compared to 6% in August. The price of materials and fuels used by manufacturers rose 11.4%, up from 11.2% the previous month.

ONS head of prices Mike Hardie said the base effect quirk in the headline inflation rate was "offset by most other categories, including price rises for furniture and household goods."

He also said food prices fell more slowly than this time last year and added: "The cost of goods produced by factories rose again, with metals and machinery showing a notable price rise. Road freight costs for UK businesses also continued to rise across the summer."

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The pound slipped after the figures were released and was trading roughly 0.1% lower at $1.377.

Inflationary pressure has led to tough talk at the Bank of England, the UK's central bank. Governor Andrew Bailey said over the weekend the Bank will have to act to stamp down on inflation, which it expects to rise above 4% in the coming months.

Paul Dales, chief UK economist at Capital Economics, said: "This feels a bit like the lull before the storm." Dales said a sharp rise in UK energy bills this month had probably lifted CPI inflation to around 3.8% in October.

Silvia Dall'Angelo, senior economist at Federated Hermes, said: "The inflation picture is set to get worse in the short term." Yet she said inflation would cool sharply over the medium term.

Financial markets now think the BoE will raise interest rates from their record low level of 0.1% this year, making it the first major central bank to do so. Traders now expect a rise to 0.25% in November.