UK inflation reaches 16-year high

According to official figures, UK inflation hit 5.2% in September, the highest level since March 1992, and more than twice the Government’s target of 2%.

Higher food and energy costs this year have been blamed for the surge in inflation this year.

The Office for National Statistics said the annual rate of inflation for energy and other household bills reached 15% - the highest since 1989.

Furthermore, a rise in the cost of clothing, footwear, games and toys also added to the cost of living. However, food inflation slowed for the first time in seven months as the price of milk stabilised but the price of meat continued to rise.

However, analysts believe that inflation has reached its high and is expected to slow due to falling oil prices and reduced demand in a slowing economy.

Last week, the Bank of England, along with five other central banks, reduced interest rates by half a percentage point. According to the Bank, the threat of inflation had moved ‘decisively’ to the downside. Interest rates have remained on hold since April in a bid to curb inflation.

The figures show that the Consumer Price Inflation (CPI) measure was up from 4.7% in August, while the Retail Prices Index (RPI) figure (used to calculate benefits and state pensions for the coming year) rose from 4.8% in July to 5%. As a result, single people receiving the basic state pension will receive an extra £4.54, while pensioner couples will receive an additional £7.26.

According to the Bank of England, inflation will remain above the 2% target well into 2009. However, Howard Archer of Global Insight, said rising unemployment levels, reduced economic activity and the tightening of lending would restrict spending and ‘dilute underlying inflationary pressures‘.

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