UK inflation rate holds at 6.7% in September

LONDON, Oct 18 (Reuters) - British annual consumer price inflation (CPI) held at an 18-month low of 6.7% in September, bucking economists expectations for a further decline, official data showed on Wednesday.

The Bank of England had been expected by financial markets to leave interest rates at 5.25% on Nov. 2, having kept them on hold in September following an unexpected drop in the August inflation rate the day before it announced its decision.

Sterling rose slightly after the data, which increases the chances of a further rate increase by the BoE.

Wednesdays data showed that core inflation - which excludes volatile food, energy, alcohol and tobacco prices and is sometimes seen as giving a better guide to underlying price trends - fell less than expected to 6.1% in September from Augusts 6.2%.

Services price inflation - another CPI component the BoE studies - rose to 6.9% in September from 6.8%.

British consumer price inflation hit a 41-year high of 11.1% in October 2022 after European energy prices soared following Russias invasion of Ukraine, adding to pressures caused by supply chain difficulties and labour shortages following the COVID-19 pandemic.

In its last set of forecasts in August, the BoE predicted inflation would stay above its 2% target until early 2025.

Britains government is keenly eyeing inflation too, after Prime Minister Rishi Sunak pledged to halve it at the start of this year, and many households have seen their standard of living fall as wages have struggled to keep up with prices.

“As we have seen across other G7 countries, inflation rarely falls in a straight line, but if we stick to our plan then we still expect it to keep falling this year,” finance minister Jeremy Hunt said after the data.

British consumer price inflation remains the highest of any major advanced economy, with France and Italy the nearest with rates of 5.7% and 5.6% respectively for September.

Producer prices - which represents what manufacturers charge wholesalers and retailers - fell by an annual 0.1% in September after a 0.5% drop in August.