Inflation rate hits eight-year high

Britain's annual inflation rate in September was driven to its highest level since 1997 by higher transport and petrol prices, official figures showed today.

The Office for National Statistics (ONS) said the consumer prices index (CPI) rate had risen to 2.5%, up from 2.4% in August and the highest level since comparable records began in 1997.

Although it was the third successive month that inflation had been above the Bank of England's 2% target, the figure was less than the 2.7% predicted by analysts.

They said it should be fairly reassuring to the Bank of England because core inflation remained at 1.7% in September, having edged back to this level in August from 1.8% in July.

The ONS said the largest upward effect on the CPI annual rate had come from transport, mainly due to fuel and lubricants.

Reflecting the rise in crude oil prices, petrol pump prices in September rose by 4.6p a litre on average, compared with a rise of only 0.1p a year ago.

The Bank said it expected inflation to remain above target in the next few months before coming back down towards 2%.

Today's lower than expected rate may ease worries among Bank policymakers that inflation could be set to accelerate.

"Consumer price inflation rose less than expected in September, despite further upward pressures from energy," Howard Archer, of the consultancy Global Insight, said.

"We believe the door is still ajar for an interest rate cut in November, although it is likely that the more hawkish members of the monetary policy committee ... will want to see sustained evidence that underlying inflationary pressures remain contained before supporting such a move."

Earlier this month, the monetary policy committee left rates unchanged at 4.5% after having lowered borrowing costs for the first time in two years in August. Analysts are divided as to whether the MPC will cut again before the end of the year.

Rachel Lomax, a Bank deputy governor, yesterday said that although she was comforted that the public's expectations of future inflation "have been well anchored for the best part of the decade", there was no room for complacency.

The City should gain some clues about the future direction of interest rates from the minutes of the October decision on Wednesday and retail sales data due later this week.