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UK inflation accelerates more than forecast to reach 2.9%

Sep 12 2017 11:11
Lucy Meakin

London - UK inflation accelerated more than forecast in August, pushing close to 3% again after the biggest surge in clothes prices in almost three decades.

The jump in the rate to 2.9% from 2.6% in July comes in the wake of a renewed decline in the pound, which has been boosting import costs since the Brexit vote in 2016. Core inflation also accelerated more than economists expected, reaching the most since 2011, the Office for National Statistics said.

The numbers - intensifying a squeeze on households - may also put fresh pressure on Bank of England (BoE) policy makers, who are grappling with price growth above their 2% target. The nine-member Monetary Policy Committee has split in recent months, with two members pushing to hike interest rates from a record-low 0.25%.

The inflation pickup in August was led by clothing and footwear, which surged 2.4% on the month and 4.6% compared with a year earlier. The statistics office said weaker sterling may be partly to blame, with the currency down 11% since the UK voted to leave the European Union in June 2016.

BoE Governor Mark Carney will have to write a letter to Chancellor Philip Hammond if the CPI rate deviates from the central bank’s target by more than one percentage point, explaining the bank’s strategy to bring it under control.

The pound climbed to a one-month high after the inflation data, advancing 0.7% to $1.3253 as of 10:35.

Separate data on Tuesday showed that companies’ input costs rose 1.6% in August, the most this year, while output prices rose 0.4%.

The pickup in prices this year is putting the squeeze on consumers, as inflation is outpacing earnings, and acting as a drag on the economy.

Data Wednesday is projected to show wage growth may have accelerated for a third month in July, though at just above 2%, that means workers are still losing out in real terms.

The BOE announces its next policy decision on Thursday. A majority of MPC members are forecast to vote for no change to the benchmark rate, with inflation concerns tempered by the fact the economy expanded just 0.3% in the second quarter, leaving growth the slowest among Group of Seven nations.

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uk  |  inflation  |  economy

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