U.K. Consumer Prices Rise At Fastest Annual Pace in Nearly Two Years

By WIKTOR SZARY and PAUL HANNON for the Wall Street Journal.

LONDON—U.K. consumer prices rose at the fastest annual pace in nearly two years in September, but statisticians said there was little evidence so far the uptick was driven by the recent slump in sterling.

The Consumer Price Index rose by 1.0% in the year to September, the Office for National Statistics said, the highest increase since November 2014. Economists polled by The Wall Street Journal had expected annual inflation to accelerate to 0.9% on the year from 0.6% in August.

The pickup in inflation was driven by a seasonal rise in clothing prices, as well as an increase in hotel stay and fuel prices, data showed.

“There is no explicit evidence the lower pound is pushing up the prices of everyday consumer goods,” the ONS’s Head of Inflation Mike Prestwood said.

Statisticians said there is anecdotal evidence that retailers had hedged against a fall in the pound, and may not face cost pressures to raise their prices for some months.

However, earlier this month consumer goods giant Unilever PLC began raising the pricesit charges British retailers, citing the rising costs of its imports. This triggered a pricing dispute with grocer Tesco PLC, which saw some of Britons’ favorite products temporarily disappear from the supermarket’s shelves.

Resolved within hours, the dispute was merely the “thin end of the wedge” when it comes to relationships between U.K. retailers and their suppliers, said Kay Daniel Neufeld,analyst at the Centre for Economics and Business Research, an economic consultancy.

Most economists expect sterling’s fall will fuel a sharp revival in price growth, which has been largely dormant for years. The Bank of England also expects the decline to push inflation back to its 2% target by around the third quarter of 2017.

“September’s jump in CPI inflation is a wake-up call to markets and the [Bank of England’s rate-setters] that Britain is heading for a prolonged period of high inflation,” said Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics in London. The rise will be driven by higher import and energy prices, Mr. Tombs said.

BOE Gov. Mark Carney Friday said policy makers will tolerate a small rise in inflation above its target, since a rise in interest rates would push unemployment higher. Together with similar comments from policy makers in the U.S. and Japan, that has fueled concerns that inflation rates around the world will rise more rapidly than previously anticipated, prompting a sharp selloff this week in bonds issued by the U.K. and other governments.

Combined with the uncertainty around the U.K.’s future trade arrangements, which analysts say will dampen business climate and tighten labor market conditions, higher inflation could lead to a fall in consumer spending, one of the main drivers of the British economy-hurting the U.K.’s growth prospect.

But the coming Christmas trading period will likely throw consumer price rises into sharp relief. Alice Enders, analyst at Enders Analysis, said British consumers will brace for the inevitable on the U.K.’s high street.

“Most people in the U.K. live on slim budgets; they know inflation hurts them. Price increases are going to become more visible and more of a constraint on the weekly shop.”