Inflation hits lowest rate since November 2009

But hikes in food and energy bills put a dampener on the news.

Gas Burner
Energy bill hikes are expected to drive inflation up over the winter months. Photo: Getty

Inflation fell to 2.2 per cent in September, down from 2.5 per cent in August – its lowest in almost three years.

The Office for National Statistics announced the drop in Consumer Prices Index (CPI) on Tuesday but the rate still remains above the Bank of England’s 2 per cent target.

The news comes at a bad time for those on benefits, as the lower rate of 2.2 per cent provides a loose base-figure for how much benefits – apart from state pensions – are set to increase next April.

However, the drop will ease the squeeze on British households, with the Treasury declaring that the fall in inflation would bring “welcome relief to the budgets of families and businesses”.

But the news provides only temporary respite for UK households as energy bill hikes and food price increases loom.

“This is as low as the inflation data is going to go”, said Alan Clarke, an economist at Scotiabank.

“This is the best chance we had to hit the 2 per cent inflation target, and we failed. But the tide has now turned and utility price hikes will push [it] up”, he added.

Four of Britain’s ‘Big Six’ energy suppliers have already announced plans for increases of 6-9 per cent in energy bills as winter approaches, with the remaining two expected to follow suit in early 2013.

As well as this, a rise in commodity prices linked to droughts in the US are expected to contribute to climbing food prices in the near future. Likewise, additional inflationary pressures are likely to come from  tuition fee hikes in October and planned fuel duty increases scheduled for January 2013.