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Vegetables are seen for sale in Soho's Berwick Street Market in central London May 17, 2011. (PAUL HACKETT/Reuters)
Vegetables are seen for sale in Soho's Berwick Street Market in central London May 17, 2011. (PAUL HACKETT/Reuters)

U.K. inflation hits three-year high Add to ...

Inflation in Britain hit a three-year high in September driven by soaring gas and electricity bills, data showed on Tuesday, adding to the severe squeeze on Britons’ living standards as wages have failed to keep up with rising prices.

The jump highlights the risk to the Bank of England’s recent move to revive the faltering economic recovery with a fresh dose of quantitative easing.

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The central bankers expect inflation to drop sharply next year when one-offs, like the VAT hike, fall out of the equation and the weak economy dampens wage and price increases.

Consumer prices rose 0.6 per cent last month, taking the annual inflation rate to 5.2 per cent, the highest since September 2008, the Office for National Statistics said.

The rate has never been higher since the introduction of CPI measure in January 1997. Analysts had expected the annual rate to jump to 4.9 per cent.

The retail price inflation gauge, which includes more housing costs and is the benchmark for many wage deals, rose 5.6 year-on-year, reaching its highest level since June 1991.

The ONS said that the price rises of four of the six large utility companies have been factored into the inflation figure so far. The other two will be reflected in the October print.

Bills for gas, electricity and other fuels rose 18.3 per cent on the year in September, while transport costs were up 12.8 per cent. Food prices were 6 per cent higher than last year.

Bank of England chief economist Spencer Dale told Reuters earlier this month that inflation should fall sharply early next year and continue to ease during through the year.

The Bank has launched a second round of quantitative easing, pumping £75-billion into the economy, as it worries that the weak economy may push inflation too far below its 2 per cent target in the medium-term.

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