Introduction: UK inflation jumps to 3.5% on rising motor fuels cost; UK approves Jackdaw gas field
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
UK inflation has accelerated more than expected to 3.5% as the cost of motor fuels surged at the fastest rate in four years, with diesel topping £2 a litre this month.
The Office for National Statistics said annual inflation, measured by the consumer prices index (CPI), rose from 3.1% in August. Economists had forecast a rise in the consumer prices index to 3.4%.
The ONS said the biggest factor pushing up inflation was transport, in particular motor fuels; while restaurants and hotels made the largest, partially offsetting, downward contribution.
The motor fuel inflation rate was the highest since August 2022.
Core CPI (excluding volatile energy, food, alcohol, and tobacco costs) rose by 2.8% in the 12 months to September, up from 2.6% in August.
Oil and gas prices have soared since the end of February when the US and Israel launched their war on Iran. The practical closure of the strait of Hormuz to most fossil fuel traffic since then has sent the price of Brent crude well north of $100 a barrel.
Petrol prices have climbed above £1.70, while the cost of a litre of diesel has also risen, hitting a record high of more than £2 a litre this month.
Bank of England officials are widely forecast to raise interest rates when they meet next month, with concerns that inflation will jump above 4% next year – more than double the central bank’s 2% target rate.
The UK government has approved the controversial Jackdaw gasfield in the North Sea, a widely expected move that will nonetheless dismay environmental campaigners and a number of Labour MPs.
Miatta Fahnbulleh, the energy secretary, said the project will start supplying gas to homes and businesses from the end of this month.
At the same time, she said a new energy wealth fund will be set up by the government with a £2bn downpayment to reinvest oil and gas revenues into the climate transition, away from fossil fuels.
She said:
Following careful consideration of all relevant factors I have agreed that the regulator can grant consent for gas to be produced at Jackdaw, which will begin to supply the UK with gas from this winter thanks to the highly skilled and vital North Sea workers.
This decision will support the country’s energy security with homegrown gas this winter and help minimise the UK’s use of imported higher emission fuels as we continue our transition to renewables and nuclear.
The decision is compatible with our legally binding climate commitments, and we remain resolute in ending new licences for oil and gas and achieving net zero by 2050.
While Labour’s 2024 election manifesto committed to a ban on new drilling licences in the North Sea, the companies behind Jackdaw and the Rosebank oilfield project, which is being decided on separately, have sought environmental approval for existing licences.
The companies resubmitted their applications for environmental approval earlier this year. The decision on Jackdaw had been expected last month but was delayed, seemingly to take it beyond the Holborn and St Pancras byelection on 8 October, where Labour was defending a seat against a Green challenge and ultimately won.
Andy Burnham, the prime minister, said the decision will “protect hundreds of jobs and help keep millions of homes warm this winter”.
At a time when people are really struggling, it’s right that we look in a responsible way at maximising the existing energy reserves we have in Britain that could help.
We’re committed to moving towards renewable energy and reaching net zero by 2050. But even on our ambitious climate path, we’ll still require oil and gas as part of our energy needs for decades to come. That’s why we’re taking a pragmatic approach to the North Sea. We’re also establishing a new Energy Wealth Fund to invest in renewable energy, support the green transition and help reduce energy bills over the long-term.
Our approach will ensure we can boost our energy security, back British workers, ringfence futureNorth Sea proceeds to speed up the green transition, hit our ambitious climate targets and - crucially - bring down bills.
The Agenda
2pm BST: Bank of England governor Andrew Bailey speech
5pm BST: European Central Bank president Christine Lagarde speech