MNI DATA IMPACT: UK Sep CPI Rises From Distorted August Level

UK CPI rose modestly from an unusually-depressed August outturn, while borrowing exceeded OBR forecasts, taking total debt to the highest level since the fiscal year ending in 1960, data released on Wednesday by the Office for National Statistics showed.

Consumer price inflation inched up to an annual rate of 0.5% in September, falling short of the 0.6% forecast by analysts, from 0.2% in August, marking the 14th straight month below the Bank of England's 2.0% target.

Borrowing rose to GBP36.101 billion in September, the highest since May, exceeding the OBR forecast of GPB39.2 billion. That takes borrowing to 103.5% of gross domestic product, the biggest since the fiscal year ending in March of 1960.

Inflation was significantly reduced in August, due to measures to help the hospitality sector. After adjusting for discounts under the Eat Out to Help Out Scheme and the reduction of value-added-tax, CPI would have increased by 0.8% in August, rather than the 0.2% headline rise. Core inflation rose to 1.3% from 0.9% in August.

Airfares provided the biggest boost to inflation, adding 0.15 percentage points to the change in CPI. However, that did not represent an increase in travel costs, simply that airfares fell by less between August and September in 2020 than in the same period a year earlier.

An GPB18 billion jump in government spending accounted for much of the increased borrowing, while VAT receipts declined nearly GBP4 billion, the biggest year-on-year fall since the onset of the pandemic. However, an ONS official warned that VAT receipts, which are largely based estimates, have tended to be revised upward in later months.

August borrowing was revised down to GBP30.113 billion from the originally-reported GBP35.920 billion, continuing the trend of hefty downgrades in recent months. Over the year to August, borrowing totalled GBP172.4 billion, down slightly from the GBP 173.7 billion reported last month. The latest borrowing data do not reflect the expense of loan schemes extended by the central government. The ONS is "still working on a methodology" to account for those outlays, according to a statistician, who noted that there "have been no defaults yet" related to those loans.

The ONS did not update a new series which reweighs CPI according to post-Covid spending patterns, but is aiming to do so next month. Intermediate prices remained subdued. Input prices declined by 3.7%, the eighth straight decline, but the smallest annual fall since March. Output prices declined by an annual rate of 0.9%, the sixth straight decline. Core output inflation increased by 0.3%, after recording no change in August.