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UK CommentConsumer price inflation surprises to the downside in September

  1. CPI and CPI core inflation down to 2.4% and 1.9% respectively
  2. Inflation pulled lower by the same volatile components that pulled up in August
  3. Inflation now in line with the BoE’s expectation
CPI and CPI core inflation down to 2.4% and 1.9% respectively
After surprising to the upside in August, UK consumer price inflation was weaker than expected in September. CPI inflation fell to 2.4 percent in September, from 2.7 percent in August, and core inflation fell to 1.9 percent, from 2.1 percent in August. Consensus expectations were for 2.6 percent and 2.0 percent respectively. The downward correction in CPI inflation in September left the rate in line with the Bank of England’s estimate. In August, inflation was pulled higher by some rather volatile components, such as transport, cultural services and clothing. In September, those factors pulled the inflation rate down again. The largest downward contribution in September came from food and non-alcoholic beverages. Producer price inflation increased slightly from August to September, with PPI input inflation up to 10.3 percent, from 9.4 percent in August (revised from 8.7 percent). PPI output inflation increased to 3.1 percent in September, from 2.9 percent in August.
Inflation now in line with the BoE’s expectation
The sterling effect on CPI still signals that CPI inflation should continue to fall ahead. However, as we also noted last month, cost pressure continues to persist, as indicated by the sideways move in PPIs since before the summer. We therefore believe consumer price inflation could hold up somewhat in the very near term, before continuing to slide further ahead. With inflation now in line with its forecast, we believe there should be no reason for the Bank of England to become more hawkish at the upcoming November meeting. Rather, we expect Brexit turbulence to make MPC members want to wait and see before signaling policy changes. Ultimately, we expect the Bank of England will have to call off the rate hikes it currently expects over the next two years as Brexit takes its toll on the UK economy.




Kari Due-Andresen

Chief Economist Norway

Norway and UK

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