LONDON (Reuters) – British inflation jumped unexpectedly to a six-month excessive in August, pushed up by bigger-than-usual seasonal will increase in sea and air fares and briefly sending sterling above $1.32 for the primary time since July.
FILE PHOTO: Passengers stroll by Heathrow Terminal Three in London, Britain May 5, 2017. REUTERS/Neil Hall
Consumer worth inflation rose to an annual fee of two.7 % in August from 2.5 % in July, the Office for National Statistics stated – above all forecasts in a Reuters ballot of economists that had pointed to a fall to 2.four %.
The ONS additionally stated British home costs rose on the weakest annual fee in practically 5 years, dragged down by the largest drop in London home costs since 2009 – the newest signal of a slack housing market because the 2016 Brexit vote.
Wednesday’s knowledge jolted buyers. British government bond costs fell and sterling rose sharply, however it dropped afterward a report Prime Minister Theresa May will reject a brand new European Union plan to unravel the Irish border drawback round Brexit.
The inflation figures are additionally more likely to shock Bank of England officers who had anticipated inflation to chill to 2.four % in August.
The BoE final month raised rates of interest for the second time because the monetary disaster however pointed to solely gradual future will increase because it expects inflation to float down to close its 2 % goal in three years’ time.
Most analysts doubted the newest bounce in inflation mirrored an increase in underlying worth pressures and was pushed largely by components like theatre ticket costs that had been in all probability one-offs.
“Despite the overshoot, we are doubtful that we are likely to see any resulting shift in the mood music from those on the UK’s Monetary Policy Committee,” Investec economist Victoria Clarke stated.
Still, the rise in inflation in August represents a setback to the modest restoration in real-terms wage progress that has helped to help financial progress this yr.
The fall within the worth of the pound in August on renewed issues about Brexit disadvantaged shoppers of the advantage of a fall in oil costs in annual phrases, the ONS figures confirmed.
Consumer worth inflation hit a five-year excessive of three.1 % final November, when the inflationary impact of the pound’s tumble after Britain’s June 2016 referendum vote to exit the EU reached its peak.
The ONS stated home costs in July rose by an annual three.1 % throughout the United Kingdom as an entire in contrast with three.2 % in June – the smallest enhance since August 2013.
House costs in London alone fell zero.7 % year-on-year in July, the largest drop since September 2009.
“Slowing growth in house prices will encourage households to save a larger share of their incomes and will strengthen the case for the MPC to hold back from raising Bank Rate again within the next six months,” economist Samuel Tombs from Pantehon Macroeconomics stated.
Despite August’s rise within the headline fee of inflation, the ONS knowledge instructed there could possibly be some aid for shoppers within the months forward.
Prices at British manufacturing facility gates rose 2.9 % year-on-year in August, the weakest enhance in 4 months. Manufacturers’ prices for supplies and power additionally rose on the slowest tempo in 4 months.
Reporting by Andy Bruce and William Schomberg; Editing by Mark Heinrich and Hugh Lawson