UK inflation unexpectedly holds steady in October
Defying expectations that it would hit a new peak.
Inflation in the UK held firm in October against expectations from the Bank of England and economic experts that it would hit a new high.
Already at its highest level in five-and-a-half years, consumer price inflation held at an annual rate of 3%, according to the Office for National Statistics (ONS). This was below economists’ expectations – revealed in a Reuters poll – who predicted it would jump to 3.1%.
The Bank of England recently raised interest rates for the first time in a decade (by 0.25% to 0.5%) offering a glimmer of hope to savers, but worrying those with hefty mortgage repayments.
After the rise the BoE predicted that inflation would peak at around 3.2% in October before falling slowly to just above its 2% target within three years.
BoE Governor Mark Carney told Reuters the overshoot of the 2% target was due to the 10% fall in the pound after last year’s Brexit vote, which pushed up the price of imported goods.
British inflation leapt from a subdued 0.5% at the time of the Brexit vote in June last year to its highest since April 2012 in September.
The ONS said October’s steady reading reflected falls in fuel prices being offset by the higher cost of groceries, according to Yahoo Finance.
The alternative measure of retail price inflation – used to calculate payments on government bonds and many commercial contracts – rose to a near six-year high of 4.0%, which is gloomy news for Chancellor Philip Hammond as he prepares an annual budget due on November 22nd.
Still, the fact consumer price inflation did not exceed 3% means Carney will not be obliged to write a letter to Hammond alongside next month’s rate decision, which is a legal obligation when inflation jumps more than 1% above target.
Many economists criticised the BoE’s decision to raise rates earlier this month, but say inflation is on track to fall. There are few signs, they add, that Britain’s slow growing economy will overheat and generate above-target inflation on its own.
In fact, Tuesday’s data confirmed that some underlying price pressures are easing. Economists polled by Reuters had expected a fall to 4.8%.
The ONS also said prices in September rose by an annual 5.4% across the UK as a whole compared with 4.8% in August, the biggest increase in almost a year. Prices in London alone remained soft, rising by 2.5% the weakest since February.
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