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London - UK inflation unexpectedly slowed in October, driven down by the price of clothing and university tuition fees, but cost pressures built as the falling pound spurred the biggest jump in import prices in five years.
Consumer-price growth was 0.9% compared with 1% in September, the Office for National Statistics said on Tuesday. The rate was forecast by economists to accelerate to 1.1%. Prices rose 0.1% on the month, the same as a year earlier.
The slowdown is almost certain to prove temporary as separate figures showed the cost of goods leaving factory gates rose 2.1% - the fastest annual pace since April 2012. Input prices jumped 12.2% as import costs surged 14.1%, the most since 2011.
Testifying to lawmakers in London, Bank of England (BoE) Governor Mark Carney said Britons should expect inflation to accelerate as the pound’s 18% drop in the past year feeds through.
“As an individual, I wouldn’t take a steer from the October numbers to say ‘that was all just noise,”’ Carney told the House of Commons Treasury Committee.
“Unfortunately, inflation is going to go up. That’s the consequence of a very large move in the exchange rate, and then the decision we have to take as a committee is how do we react to that. Do we push inflation down at some cost to output and employment, or do we look through it, given the causes, in order to get a better outcome for the economy. ”
Officials earlier this month dropped plans to cut interest rates again and shifted to a neutral policy stance instead. The BOE sees the inflation rate reaching 2.4% in the second quarter of 2017 and remaining above target until the end of the decade.
The ONS said that aside from motor fuel prices, which jumped 2.3% in October, there is little evidence that the weaker pound has fed through to prices in the shops. Clothing prices and tuition fees rose less last month than they did a year earlier and there were declines in the cost of games and toys, hotel stays and non-alcoholic drinks.
But the pressure on companies to raise prices was underscored by the latest producer-price figures. The cost of fuel and raw materials rose 4.6% on the month, the most since records began in 1996. Factories responded by raising output prices 0.6%. For policy makers, much will depend on whether accelerating inflation pushes up wage settlements.
Core inflation - which excludes volatile food and energy prices - slowed to 1.2% from 1.5%. Inflation including owner-occupier housing, now the ONS’s preferred measure, was unchanged at 1.2%.
House-price growth was unchanged at 7.7% in September, the ONS said.
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