U.K. Inflation Hits Five-Year High -- Update
October 17 2017 - 6:12AM
Dow Jones News
By Jason Douglas and Wiktor Szary
LONDON--Consumer prices in the U.K. rose in September at the
fastest annual rate for more than five years, a pickup that will
reinforce expectations the Bank of England could nudge up interest
rates as soon as November.
Annual inflation in the U.K. accelerated to 3% in September, the
Office for National Statistics said Tuesday, the fastest pace of
growth in prices for goods and services since early 2012.
Consumer prices have now been rising in excess of the Bank of
England's 2% target for eight straight months. BOE officials have
repeatedly signaled they expect to raise borrowing costs soon to
rein in inflation, despite signs the economy is slowing as
consumers pare back spending and Britain's decision to exit from
the European Union weighs on investment.
Most economists expect the BOE to raise its benchmark interest
rate to 0.5% in November, from 0.25%. A quarter-point rise would
mark the first time the U.K. central bank has increased interest
rates in a decade. Officials led by Gov. Mark Carney say they
expect future increases in borrowing costs to be limited and
gradual.
The BOE's shift in stance comes as major central banks step back
from the easy-money policies they have pursued for years in an
effort to revive economies scarred by the financial crisis that
tipped the world into recession in 2009.
In the U.S., the Federal Reserve has begun shrinking its huge
portfolio of assets and officials are expected to raise short-term
rates again in December. The European Central Bank is expected to
say later in October that it will begin dialing back the pace of
its own asset-buying program.
Whereas the Fed and the ECB are responding to buoyant growth and
stirring, if subdued, inflation, the BOE is confronting a different
challenge, of high inflation and weakening growth.
Inflation in Britain has accelerated following a fall in the
pound after last year's Brexit vote. At the same time, unemployment
has declined to a 40-year low, eating up the labor-market slack
that would normally restrain domestic cost pressures.
In response, the BOE said in September that a majority of
officials expect to raise their benchmark interest rate "within
months."
In testimony to lawmakers Tuesday, a newly appointed deputy
governor made it clear he wasn't part of that majority and still
saw room for the economy to grow without generating too much
inflation.
"I still think there is some slack in the economy, not a lot,
but still some," said David Ramsden, who is responsible for banking
and markets and joined the BOE in September after a long career in
government.
Policy makers fret the economy will struggle to expand without
stoking inflation as long as uncertainty surrounds the U.K.'s
future ties to the EU. Prime Minister Theresa May dined Monday with
European Commission President Jean-Claude Juncker in an effort to
spur faster progress in divorce talks between London and
Brussels.
"Were developments in negotiations to give confidence that a
deal could be struck and a disorderly exit avoided, it could
buttress demand in the economy," Mr. Ramsden told lawmakers.
The ONS said Tuesday that September's acceleration in inflation
was driven largely by higher food prices than a year earlier.
Transport costs, especially airfares, also pushed up the annual
rate, the agency said.
-- Paul Hannon contributed to this article.
Write to Jason Douglas at jason.douglas@wsj.com and Wiktor Szary
at Wiktor.Szary@wsj.com
(END) Dow Jones Newswires
October 17, 2017 05:57 ET (09:57 GMT)
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