Business

British annual inflation hits six-month high

Thursday, September 20, 2018

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London, United Kingdom (AFP) — Britain's annual inflation rate unexpectedly hit a six-month high in August, official data showed yesterday, catapulting the pound as markets eyed higher UK interest rates to tame rising prices.

The Consumer Prices Index 12-month rate jumped to 2.7 per cent last month from 2.5 per cent in July, the Office for National Statistics (ONS) said in a statement.

Analysts' consensus forecast had been for a dip in the CPI rate to 2.4 per cent in August.

Responding to the surprise data, “sterling gained sharply, reaching an eight-week high against the dollar, as traders adjusted their interest rate forecast”, noted Ben Brettell, senior economist at Hargreaves Lansdown stockbrokers.

“The figures won't come as welcome news to the Bank of England though — they'll be desperate to leave policy unchanged until we get some clarity over Brexit, and won't want to be forced into a rate rise by accelerating prices,” he added.

The Bank of England earlier this month voted to leave its main interest rate unchanged, as it noted “greater uncertainty” surrounding Britain's departure from the European Union set for March next year.

However, the BoE's Monetary Policy Committee had in August voted unanimously to raise the rate by a quarter-point to 0.75 per cent amid Brexit-fuelled UK inflation.

It was only the second hike since the global financial crisis a decade ago and was in response to UK annual inflation holding stubbornly above the BoE's official 2.0 per cent target.

Despite yesterday's rally for the pound, the currency has slumped since Britain's vote in favour of Brexit more than two years ago.

That in turn has pushed up the cost of goods imported into the UK, while a surge in oil prices over the past year has also fuelled inflationary pressures.

Explaining August's jump in inflation, the ONS said in yesterday's statement:

“Rising prices for a range of recreational and cultural goods and services, transport services and clothing produced the largest upward contributions to the change in the rate between July and August 2018.

“Partially offsetting downward contributions came from furniture and household goods, and telecommunications; prices for these rose between July and August 2018 but by less than a year ago,” the statistics office added.

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