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Stubborn UK inflation holds steady as petrol prices rise

LONDON, Oct 18 : British consumer price inflation (CPI) unexpectedly held at 6.7% in September, remaining the highest of any major advanced economy and keeping alive the possibility of another rise in interest rates.

A rise in petrol prices between August and September was the main factor stopping a fall in the annual rate, the Office for National Statistics said on Wednesday.

But two other less volatile measures closely watched by the Bank of England (BoE) – core inflation and services prices – were also robust, which is likely to leave some policymakers worried about longer-term price pressures.

“Progress in bringing inflation down is proving slow,” said Ian Stewart, chief economist at accountancy firm Deloitte. “The persistence of underlying inflation, and service price pressures, suggests that interest rates are likely to stay close to current levels for much of the next year.”

Sterling rose after the data and British government bond prices fell, as financial markets judged another rate rise by the BoE is more likely than not – though not necessarily as soon Nov. 2, when the central bank announces its next decision.

September’s data still leaves headline inflation below what the BoE forecast in early August and several economists said it was not enough of an upward surprise to prompt the BoE’s Monetary Policy Committee (MPC) to resume its rate-tightening cycle.

“We expect the MPC to remain on hold this year, but to continue to push back against any rapid cuts,” Morgan Stanley economist Bruna Skarica said, adding that she expected rate cuts to begin in May 2024 or slightly later.

Last month the BoE kept interest rates on hold for the first time since it started its tightening cycle in December 2021, following an unexpected fall in inflation in August and other weaker data.

The central bank’s chief economist, Huw Pill, said last week that the question of further rate rises was “finely balanced” and Governor Andrew Bailey predicted future votes would be “tight”, following on from September’s 5-4 split.