Headline inflation eased again in September, official figures are expected to show this week, while pay growth is slowing. Economists polled by Refinitiv expect the Office for National Statistics (ONS) to say annual inflation fell slightly to 6.5% in September from 6.7% in August. However, that is still well above the Bank of England’s 2% target. A steeper fall in prices growth was likely until oil prices jumped, with the cost of a barrel of Brent crude up $10 over the month to a peak of $97 at the end of September. It has since fallen back to $90. Motorists in the south-east have seen petrol prices at the pumps rise above £1.56 a litre and the cost of a litre of diesel increase to £1.60, according to the AA motoring group. The jobs market has also weakened, increasing unemployment and reducing the need for employers to keep pushing wage bills higher. The ONS said last month that total earnings (including bonuses) in the three months to July 2023 were 8.5% higher than in the same period a year earlier – the highest since modern records began in 2001 other than during the Covid-19 pandemic. Most analysts said the exceptional increase in average incomes – boosted by bonuses to NHS workers – most likely weakened in August to 8.3% or lower. Earnings growth without bonuses is expected to be unchanged at 7.8% in the three months to August compared with a year earlier, according to economists polled by Refinitiv. Michael Stull, a senior executive at the recruiter Manpower, said the demand for workers was weaker than a year ago, though there were “mixed messages” from employers. “Tech firms and consultancies that over-hired staff during the pandemic are making layoffs while other firms that need skilled IT people are hiring. And there is still an unsatisfied demand for drivers and skilled technical workers,” he said. Martin Beck, chief economic adviser to the EY Item Club, said concern among mortgage holders that “sticky inflation” would persuade Bank of England policymakers to raise interest rates for a 15th time in 21 months when they meet in November was misplaced. Beck, who has forecast inflation to remain at 6.7% in September, mainly due to the rise in oil prices, said there would probably be a steep fall in the last three months of the year, taking inflation towards 4%. “Inflation is now expected to fall slightly faster than was forecast in the summer, and could reach 4.5% by the end of 2023, before hitting the Bank of England’s 2% target during the second half of 2024,” he said. He expects Threadneedle Street to hold rates at 5.25% in November for a second consecutive time and begin cutting them next May to help revive what he expects will be a stagnant economy. Bank of England officials said last week that the decision would be a nail-biter, especially with mounting political uncertainty because of the conflict in the Middle East. Chief economist Huw Pill described the next interest rate decision as “finely balanced” while Governor Andrew Bailey said it would be a tight affair and there was “an awful lot left to do” to bring down inflation to the Bank’s 2% target. Gas prices have added to the upward pressure on inflation, increasing by even more than oil prices over the last two months. A reduction in the government’s energy price cap will still go ahead in October, though a sustained increase in the cost on international markets could force a reversal next year. Analysts said they were concerned that the Israel-Hamas war could lead to boycotts and blockades that restrict supplies and send prices even higher. Ruth Gregory, a senior UK economist at the consultancy Capital Economics, said a rise in oil prices to $100 a barrel “wouldn’t boost inflation by much”. However, she said: “The longer the conflict goes on, or the more widespread it becomes, the greater the upside risks to inflation. If oil prices were to rise to $100 a barrel and the recent rise in gas futures pricing were maintained, then the average inflation rate in 2024 would be one percentage point higher than our forecast.”