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Tuesday, 15 October, 2002, 10:06 GMT 11:06 UK
Clothing prices help inflation higher
A cash register
Inflation rose by more than had been expected in September
The underlying rate of inflation in the UK has shown an unexpected rise for last month, reaching its highest level since April.

The figures from the Office of National Statistics (ONS) showed a 2.1% increase in September, against 1.9% the month before.


It's difficult to conclude anything else than that interest rates are on hold for the moment

George Buckley, Deutsche Bank
The rate of inflation was higher than market estimates, but still comfortably below the Bank of England's target rate of 2.5%.

Economists predicted that the figures mean interest rates will remain on hold for the time being.

Services on the up

The ONS figures showed a big divide between cost changes in goods, where prices fell by 0.9%, and the service industry, which saw inflation of 4.8%.


Given the worries about clothing sales in September, this could mean mark downs are still to come

Simon Procter, Charles Stanley

Service sector inflation is now at its highest level for more than nine years.

George Buckley, an analyst at Deutsche Bank, said the Bank of England would "be pleased overall to see goods prices in check but worried by the rise in service sector inflation".

"It's difficult to conclude anything else than that interest rates are on hold for the moment."

Clothing heading for fall?

The ONS said the largest contribution to the rises came from housing costs, followed by clothing and footwear.

However, analysts warned that clothing inflation could soon be hit by price cuts.

The warm September weather has led to a number of fashion chains warning of slower winter clothing sales.

Simon Proctor, a retail analyst at Charles Stanley, told BBC News Online: "Given the worries about clothing sales in September, this could mean mark downs are still to come."

"The inflation impact of that has yet to be seen", and could affect figures later this year, he added.

Will the UK economy feel the impact of the US slowdown?

Economic indicators

Analysis

UK rate decisions
See also:

17 Sep 02 | Business
13 Aug 02 | Business
13 Jun 02 | Business
06 Jun 02 | Business
17 May 02 | Business
15 May 02 | Business
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