(RTTNews) - UK annual inflation accelerated again in September to the highest since records began in January 1997. Higher gas and electricity costs have pushed inflation to above 5%, official data showed Tuesday.

The Office for National Statistics said in its report that consumer price annual inflation increased to 5.2% in September from 4.7% in August. September inflation exceeded economists’ expectations of a 5% rise and continues to stay above the official target of 2%.

The largest upward pressure on the CPI annual inflation came from housing and household services, which rose mainly due to rises in average gas and electricity bills. Further, recreation and culture, clothing and footwear and transport costs also pushed inflation up. At the same time, downward effect came from food and non-alcoholic beverages. Food inflation slowed to 12.7% from 14.5% in August.

In September, the monthly inflation stood at 0.5%, slightly slower than August’s 0.6%. However, it stood above 0.4% expected by economists.

The ONS stated that the core CPI that excludes volatile items, rose 2.2% in September, higher than the 2% rise seen in the previous month. Economists had expected the core inflation to remain stable at 2%.

The all items retail prices index or RPI climbed to 218.4 from 217.2 in August, showing a monthly growth of 0.6%. The monthly growth matched economists’ expectations.

The retail price index rose 5% annually, up from 4.8% in August. Economists were looking for an annual 4.9% increase. Factors affecting the CPI inflation also affected retail prices.

Excluding mortgage interest payments, retail prices rose at a faster pace of 5.5% in September compared with a 5.2% rise in the previous month. Thus, RPIX showed the highest annual increase since April 1992.

The Bank of England’s governor had written an open letter to the Chancellor in September as the inflation exceeded the target. The BoE governor is required by the monetary policy remit to write an open letter stating the reasons why inflation deviated from the target. The governor had cited higher food and fuel prices, along with the weakness of sterling as the major reason behind the persistently above-target inflation.

In a coordinated move, the Bank of England had slashed interest rates along with other central banks like Bank of Canada, the European Central Bank, the US Federal Reserve, Sveriges Riksbank and the Swiss National Bank on October 8. The BoE had reduced the official Bank Rate paid on commercial bank reserves by 0.5 percentage points to 4.5%.

Analysts now expect the BoE to cut the key interest rate by another 50 basis points to 4% at the next meeting of its Monetary Policy Committee in November. The Bank Rate could end at 2.5% by middle of next year.

On October 13, the Monetary Policy Committee member, Andrew Sentance said, “It now seems more likely than not that we will see a fall in GDP for third and fourth quarters of 2008. We can now be much more confident than we were a few months ago that inflation will come back to 2% target over medium term”.

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