An increase in the target measure of inflation last month has reduced Kenneth Clarke's room for manoeuvre on interest rates ahead of the election.
Although the Chancellor insisted in his speech to the Conservative Party conference yesterday that inflation was on course to meet the Government's target, City experts said yesterday's figures were disappointing.
"Target inflation close to 2.5 per cent by the spring is a possibility, but the latest figures hint at the longer-term outlook," said Kevin Darlington, UK economist at Hoare Govett. There was some reassurance about potential inflationary pressure from a survey showing high street sales growth was a bit more moderate last month. The Confederation of British Industry reported that retail sales volumes grew strongly but not at August's distinctly overheated pace. On the other hand, retailers expect business to pick up again next month. The orders they have placed with suppliers matched July's increase, the biggest since mid-1988. The headline rate of inflation was unchanged at 2.1 per cent in September following a 0.5 per cent rise during the month. The September figure is used to uprate benefits such as pensions. Others, such as housing benefit and family credit, will be increased by an alternative price index which excludes rent, mortgages and council tax. This edged up to 2.6 per cent. Sally Greengross, director general of Age Concern, said: "Low prices are good news, but this means the pension for an older couple will still be less than pounds 100 a week from next April." Lower mortgage rates and a steep fall in seasonal food prices helped keep headline inflation steady in the face of higher costs for clothing and shoes, petrol and household services such as school fees and conveyancing charges. …