United Kingdom wages continue to lag inflation despite low unemployment

State pension set to rise as inflation climbs to 3

The Office for National Statistics (ONS) said that the key drivers of the rise, up from 2.9% in August, were a combination of air fares, fuel, leisure and food costs either rising or falling less than the same month previous year.

On a m/m basis, however, food inflation extended the moderation it started in June, increasing by 0.87% (vs. 1.14% in August), partly supported by reported monthly declines in the average prices of tomato (-25.25%), yam tuber (-24.42%), beef (-6.33%), dried fish sardine (-3.29%), and sweet potato (-3.17%).

It is the eighth consecutive time the country's inflation rate is dropping this year.

The market expected annual inflation to be 1.8% at the end of September and the Reserve Bank forecast inflation to be 1.6%.

British pensioners received a lift from September's rise, but cash-strapped households face an even tighter squeeze as the Brexit-hit pound bumps up everyday prices and wage growth tracks behind inflation.

In addition, the September inflation rate will be used to upgrade public sector pension entitlements, which use career average earnings and see members "bank" their accrued pension each year.

Eyes will now turn to the Bank of England to see if they respond to the latest inflation figures with raising interest rates from their historic low of 0.25%.

The Reserve Bank is mandated with keeping annual inflation between 1-and-3 percent, with a focus on the mid-point.

Gasoline prices surged 13.1 percent last month, accounting for 75% of the increase in the CPI, as Hurricane Harvey knocked Gulf Coast refineries off line and forced gas dealers to scramble for supplies.

Samuel Tombs, chief United Kingdom economist at Pantheon, believes the MPC will only raise rates once in the next year though, with inflation set to peak.

Local body rates rose a quarterly 3.5 percent and were up 3.7 percent on the year.

A Treasury spokesman said: "We understand that families are feeling the effects of inflation and we are helping them with their living costs".

On a month-on-month basis, the NBS stated that the headline index increased by 0.78 per cent in September, in contrast to the 0.97 per cent recorded in August this year.

Construction of new dwellings, excluding land, rose 1.1% in the quarter and 5.4% in the year. Prices were rising faster than wages and some of the biggest price rises were basic necessities for the lowest-paid.

Transport costs put upward pressure on the headline rate, recording a smaller month-on-month fall of 1.3% in contrast to a drop of 2.3% in 2016. Food prices were up 2.8 percent on the year.

Food price pressure continued into September as all major food sub-indexes increased.

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