BoE boss warns of rising inflation on weak pound
BANK of England chief Mark Carney warned that British inflation would rebound in the coming months as the Brexit-fuelled slump in the pound sparks price hikes.
Mr Carney, addressing lawmakers on the influential Treasury Select Committee, cautioned that “inflation is going up [and] that’s a consequence of a very large move” in the exchange rate.
His comments came however as official data showed that British annual inflation had experienced an unexpected slowdown in October from a two-year high.
The 12-month inflation rate declined to 0.9 percent compared with 1pc in September, the Office for National Statistics (ONS) said.
That undershot market expectations for a slight increase to 1.1pc, as inflationary pressures subsided on smaller-than-anticipated hikes in the cost of clothing and tuition fees.
“Inflation was lower than we expected for October,” Mr Carney said in his grilling before MPs.
For its part, the ONS maintained that there was “no clear evidence” that the plunge in the value of the pound since the shock EU exit referendum was currently bumping up shop prices.
However, the BoE chief stressed this did not change the overall outlook for rising inflation on the recent slump in the pound against the euro and dollar.
Mr Carney had decided earlier this month that he would remain governor until June 2019, one year longer than initially planned, to aid an “orderly transition” to Brexit.
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 2.1pc in October from the same month a year earlier, accelerating from 1.3pc 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 can be attributed to the changes in the pound exchange rate,” the ONS noted.
“The surprise fall looks like a blip, as sterling weakness continues to raise the cost of inputs for UK businesses,” noted Ben Brettell of stockbroker Hargreaves Lansdown. “It will only be a matter of time before this feeds into higher consumer prices.
“The Bank of England now expects inflation to hit 2.7pc next year, but some analysts are predicting it will reach 4pc 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.
It has since clawed back some ground after London’s High Court recently ruled that the government must seek parliamentary approval before triggering Brexit. –
Mark Carney warns of a very large move in the exchange rate.