United Kingdom inflation rises to highest level in five years

The headline CPI rate edged up from 2.9 per cent in August to reach the highest level since 2012 last month

The headline CPI rate edged up from 2.9 per cent in August to reach the highest level since 2012 last month

Nathan Sweeney, senior investment manager at Architas, agreed a rate rise was now likely next month but said the bigger question was where the Bank went to after that, given that inflation had probably now peaked and the economy was slowing down in response to Brexit.

Inflation is set to rise above 3 percent in the next month or two, the Bank of England's governor warned Tuesday, a cautionary note that reinforces expectations interest rates will soon rise for the first time in a decade.

July and August data showed consumer prices rose by 2.6% and 2.9% respectively-the highest since 2012.

Mr Carney was speaking minutes after the United Kingdom inflation rate for September was revealed to be 3 per cent, the highest for five years.

"Today's release has all but rubber-stamped a rate hike from the central bank at their next meeting", said David Cheetham, chief market analyst at online trading firm XTB.

Though he's spared that letter-writing, Carney and the others at the bank's rate-setting panel are expected to raise the benchmark rate by a quarter percentage point from the record low of 0.25% at the next policy meeting on November 2. Mark Carney, the BoE governor, has stated his opinion that an interest rate hike is forthcoming.

Mr Carney said the rise in inflation is nearly entirely the result of the drop in the value of sterling, and he expects this impact to drop out of the statistics in the coming months.

"I think we are back where we started in terms of the balance of views", she said.

The inflation rate rise could increase the chance of the Bank of England raising the base rate next month. She added that a premature rate hike could prove more costly to the economy than an early rate cut.

One of the main reasons why inflation has spiked over the past year is related to the pound's sharp fall since the country voted to leave the European Union in June 2016.

The Bank's new deputy governor, Dave Ramsden, distanced himself from more hawkish MPC members by saying he was not close to voting for a hike.

However, the British pound remained lower against the dollar despite confirmation of Carney's view on inflation.

Carney gave no further detail on when this might come, but reiterated that it was on the mind of the monetary policy committee and most members thought a raise "over the coming months may be appropriate".

Also, there is a belief that the bank will lose credibility if once again it puts the market on notice for a rate hike and fails to deliver. "We expect that inflation will peak in and around the October figure, October-November figures, peaking potentially above the 3% level".

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