Inflation looks set to top 5 per cent this winter even after a surprise fall last month.
Official figures yesterday showed the cost of living climbed by 3.1 per cent in September – slightly slower than the 3.2 per cent rise in August.
But analysts warned that it was the ‘lull before the storm’ with inflation expected to rise further above the 2 per cent target in the coming months as household energy bills continue to soar alongside the price of food and fuel.
Official figures yesterday showed the cost of living climbed by 3.1 per cent in September – slightly slower than the 3.2 per cent rise in August
The Bank of England is under pressure to raise interest rates from the low of 0.1 per cent to bring inflation back under control.
September’s surprise dip will deepen the divide between those who are keen for the Bank to act, and those who worry a premature rate hike could stunt recovery.
Paul Dales, chief UK economist at Capital Economics, said the dip ‘feels a bit like the lull before the storm’.
He added that it ‘probably won’t deter the Bank of England from raising interest rates from 0.1 per cent in the coming months’.
And James Lynch, of Aegon Asset Management, said that inflation ‘could be above 5 per cent in the coming months’.
But Jane Sydenham, investment director at Rathbone Investment Management, said: ‘Putting rates up too quickly runs the risk that we kill off the economic recovery just as it gets going.’
She added: ‘It’s a delicate balance to manage and the risk of policy error is a real one.’
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