British consumer price inflation (CPI) unexpectedly held at an 18-month low of 6.7% in September and remained the highest of any major advanced economy, official data showed on Wednesday, raising the possibility of another rise in interest rates.
A rise in petrol prices between August and September was the main factor stopping a fall in the annual rate, the Office for National Statistics said.
But two other less volatile measures closely watched by the Bank of England - core inflation and services prices - were also robust, which is likely to leave some policymakers worried about longer-term price pressures.
"Progress in bringing inflation down is proving slow," said Ian Stewart, chief economist at accountancy firm Deloitte. "The persistence of underlying inflation, and service price pressures, suggests that interest rates are likely to stay close to current levels for much of the next year."
Sterling rose and British government bond prices fell after the data, as financial markets judged another rate rise by the BoE is more likely than not - though not necessarily as soon Nov. 2, when the central bank announces its next decision.
The central bank's chief economist, Huw Pill, said last week that the question of further rate rises was "finely balanced" and Governor Andrew Bailey predicted future votes would be "tight", following on from September's 5-4 split.
STICKY UNDERLYING INFLATION
Wednesday's data showed core inflation - which excludes volatile food, energy, alcohol and tobacco prices and is sometimes considered a better guide to underlying price trends - fell less than expected to 6.1% in September from August's 6.2%.
Services price inflation - another CPI component the BoE studies as it shows the impact of rising domestic labour costs on consumers - increased to 6.9% in September from 6.8%.
Prices charged by manufacturers - considered a good indicator of future inflation by some BoE policymakers - fell by an annual 0.1% in September after a 0.5% annual drop in August.
Raw data for the headline CPI came within a whisker of giving an inflation reading that would have been rounded down to the 6.6% rate expected by economists polled by Reuters.
CPI hit a 41-year high of 11.1% in October 2022 after European energy prices soared due to Russia's 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.
Britain's government is keenly eyeing inflation too, after Prime Minister Rishi Sunak pledged in January to halve it, and many households have seen their standard of living fall as wages have struggled to keep up with prices.
Food prices, a worry for many poorer households, were 12.1% higher in September than a year earlier.
"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.
