UK inflation rose to 5.2 percent in September, with energy bills taking the blame, official figures have shown. The Consumer Prices Index (CPI) measure was up from 4.7 percent in August.

However, with inflation tipped to slow by analysts due to lowering oil prices and reduced demand, this could mark a peak. The recent economic downturn has seen recession replace inflation as the key risk to the UK economy.

As part of a co-ordinated worldwide move, the Bank of England cut interest rates to 4.5 percent from 5 percent, adding that the risk of inflation had moved “decisively” to the downside.

The increase in food and energy prices this year have been blamed for taking inflation beyond the governments 2 percent target, with the banks predicting that it will remain above that level until well in to 2009.

Howard Archer, chief UK and European economist with Global Insight, believes reduced economic activity, rising employment and the continued difficulty in getting credit will curb spending and “dilute underlying inflationary pressures.

Inflation is likely to fall as low as 1 percent by autumn 2009, and could turn negative if oil prices continue to fall, said Jonathan Loynes, chief European economist at Capital Economics.

“CPI was once again rather worse than expected in September, but this will be the peak in inflation,” he said.

“The key issue now is just how far and fast it will drop back as the food and energy effects which have pushed it up so sharply over the last year finally fade or go into reverse.”

The credit crunch has affected UK business dramatically, with retail in particular taking a big hit last month, according to a British Retail Consortium (BRC) survey. Sales have been down in six of the last seven months.

The BRC’s director general, Stephen Robertson, explained that consumers were adapting their speding habits.

“They’re doing more cooking and less ready-prepared food, they’re shopping around more, and indeed for the savvy shopper - and I’m thinking here particularly of non-foods - there are a lot of bargains to be had as price deflation and fierce competition between stores means there’s more promotions, more discounts and more deals that I’ve ever seen before,” he said.

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