U.K. Rocked by Record Inflation

Consumer prices surged this September in the United Kingdom, rising at the fastest annual pace in two years. A seasonal rise in clothing prices, increasing hotel stay prices, and a spike in gas prices are all contributing factors to this inflation. According to the Office for National Statistics, the Consumer Price Index has risen by 1.0% as of September in 2016, the highest increase since November 2014.

Prior to the last few months of 2016, inflation in the UK remained constant, fluctuating between -0.1% and 0.1%. These numbers were largely attributed to a collapse in oil prices and a supermarket price war that led to slashed prices. However, prices have since begun to increase and are projected to continue rising due to both the Bank of England’s decision to cut interest rates and the pound’s decreasing value. Accordingly, the Office for National Statistics stated there was “no explicit evidence” that the weaker pound was the sole reason for higher prices.

Since the U.K.’s decision to exit the European Union, the pound has fallen nearly 20%  against the U.S. dollar. This includes a 5% drop in October after Prime Minister Theresa May released a timeline since the UK’s withdrawal from the EU. 

The weakened pound is expected to cause a sharp increase in inflation; the Bank of England now expects inflation to surpass its 2% target before 2017. In addition, some forecasts project an inflation rate of 3% within the next year, a magnitude unseen in four years.