LONDON: Britain’s rising inflation rate has been brought to a halt after cheaper clothes and a smaller increase in university tuition fees meant the annual increase in the cost of living fell to 0.9%. Despite higher fuel prices and the impact of the weaker pound on the cost of imports, inflation as measured by the consumer prices index dropped back from 1% in September.
City analysts – who had been predicting an increase to 1.1% – said the respite would prove temporary and that inflation would continue its upward march over the coming months. The Office for National Statistics said that in addition to cut-price clothes and university fees, inflation was dragged down by offers on toys and games, reductions in the cost of overnight hotel stays and falling prices for non-alcoholic drinks.
While the ONS said there was no evidence that the depreciation of sterling since the Brexit vote in June had led to dearer prices in the shops, there were signs of the exchange rate affecting the cost of manufactured goods leaving factories. Factory gate prices in October were 2.1% higher than a year earlier, up from 1.3%. Manufacturers are being forced to pass on the cost of rising fuel and raw materials, up 12.2% in the 12 months ending in October compared with a 7.3% increase in September.
The ONS head of inflation, Mike Prestwood, said: “After initially pushing up the prices of raw materials, the recent fall in the value of the pound is now starting to boost the price of goods leaving factories as well. “However, aside from fuel, there is no clear evidence that these pressures have so far fed through to the prices in shops.” So-called core inflation – which strips out fuel, food, tobacco and alcoholic drink – fell from 1.7% to 1.5% last month.
Chris Williamson, chief business economist at IHS/Markit, said: “UK inflation rose less than expected in October, but looks set to creep higher in coming months as rising costs eventually feed through to consumers.” Scott Bowman, UK economist at Capital Economics said: “The fall in UK CPI inflation from 1.0% in September to 0.9% in October was a temporary stumble along its upward journey that should see it breach the 2% target next year.” Inflation would peak at 3.2% in the first half of 2018, Bowman said.
