Food rise but fuel drop keeps inflation at five-year high

  • Video report by ITV News Business Editor Joel Hills

The UK's key measure of inflation has remained steady at its highest level for five years as falls in petrol offset the rising food prices.

The Office for National Statistics confirmed the rate of Consumer Price Index inflation was unchanged from September at 3% in October as rising food prices were balanced by a dip in motor fuel costs.

Economists had anticipated it would rise to 3.1% in the latest figures, which would would have forced Bank of England Governor Mark Carney to write a letter to Chancellor Philip Hammond explaining why inflation is so high.

It comes after the Bank increased interest rates to 0.5% earlier this month in an effort to cool inflation, a move that added to pressure on UK households grappling with paltry wage growth.

Dissecting the CPI figures, the ONS noted the inflation rate for food and non-alcoholic beverages was at its highest for more than four years, while recreational goods also rose between September 2017 and October 2017.

The lion's share of the food price growth came from vegetables, driven by a rise in the cost of premium potato crisps.

But the increases were offset by the falling motor fuel and furniture prices and the costs of owner-occupied housing.

The Retail Price Index (RPI), a separate measure of inflation, was 4% last month, up from 3.9% in September.

The rate of Consumer Price Index inflation was expected to peak this month. Credit: PA

Chris Williamson, chief business economist at IHS Markit, said there will be "red faces all round" after inflation failed to expand as expected.

He said: "The recent surge in price pressures is primarily due to the depreciation of sterling since last year's EU referendum, which has increased the cost of imported goods and services, but today's numbers will add to the sense that the worst of this impact has already passed."

But he argued that the unexpected flattening would make no difference to policy, which he said would have been to wait it out for interest rates to lower without intervention.

Electricity, gas and other fuels added to upwards pressure on the inflation rate. Credit: PA

However, Paul Diggle, senior economist at Aberdeen Standard Investments, predicted there might be further increases still to come.

"This probably isn't the peak in UK inflation," he said.

The impact from last year's currency depreciation, and the latest move upwards in oil prices, still have a few more months to run.

"So the Bank of England is stuck between a rock and a hard place: inflation is well above target; but Brexit uncertainty lingers and consumer spending growth could weaken."