British inflation slows despite slumping pound
British annual inflation surprisingly slowed in October from a two-year high, data showed yesterday, but it is widely expected to accelerate in the coming months on the back of Brexit. The 12month inflation rate declined to 0.9 percent compared with 1.0 percent in September, the Office for National Statistics (ONS) said in a statement.
That undershot market expectations for a slight increase to 1.1 percent, as inflationary pressures subsided somewhat on smaller-than-expected hikes in the cost of clothing and university tuition fees.
The ONS added that there was “no clear evidence” that the plunge in the value of the pound since the shock EU exit referendum was bumping up shop prices. However, Bank of England governor Mark Carney stressed that this did not change the overall outlook for rising inflation on the back of the Brexit-driven slump in the pound against the euro and dollar.
“Inflation was lower than we expected for the month of October,” Carney admitted in a grilling before lawmakers. But he also warned that “inflation is going up (and) that’s a consequence of a very large move” in the exchange rate.
And the ONS also revealed that the price of goods leaving factories in Britain jumped further last month-and partly blamed the sliding pound which has lifted imported raw material costs for UK firms.
Producers’ output prices advanced 2.1 percent in October from the same month a year earlier, accelerating from 1.3 percent in September. That was the fourth consecutive monthly gain, after two years of falling prices, and represented the largest increase since April 2012.
“The increase in producer price inflation over the past several months can be partly attributed to the changes in the sterling exchange rate,” the ONS noted.
Rising producer prices signalled mounting inflationary pressures, according to economists. “Today’s surprise fall looks like a blip, as sterling weakness continues to raise the cost of inputs for UK businesses,” noted Ben Brettell, senior economist at stockbroker Hargreaves Lansdown.
“It should be only a matter of time before this feeds into higher consumer prices. “The Bank of England now expects inflation to hit 2.7 percent next year, but some analysts are predicting it will reach 4.0 percent as sterling weakness pushes up import costs,” he added.
The pound tumbled following Britain’s shock June 23 vote in favour of leaving the European Union, striking 31-year dollar lows and 7.5-year troughs against the euro. — AFP