Rate surprises markets
Inflation in Britain held steady at 0.6 per cent in the year to August, official figures have shown.
The figure surprised many in the markets who had been expecting a further pick-up in the wake of the pound’s drastic fall following the country’s decision to leave the European Union.
The Office for National Statistics said cheaper prices for food and non- alcoholic drinks helped to offset an increase in transport costs, notably air fares, and restaurant and hotel bills. The unchanged consumer prices index was a little bit of a surprise and the pound fell 0.5 per cent to $1.3265.
The consensus in markets was that inflation would edge up for the third month running to 0.7 per cent partly because of the fall in the pound to 31-year lows below $1.30 following June’s vote to leave the EU. A lower pound makes imports, notably commodities that are priced in dollars, more expensive.
“Raw material costs have risen for the second month running, partly due to the falling value of the pound, though there is little sign of this feeding through to consumer prices yet,” Mike Prestwood, head of inflation at the agency, said.
Analysts said some firms may have chosen to absorb their higher costs but that over time they will have little option other than to pass them on, which could push inflation up towards the Bank of England’s target of 2 per cent.
Although the initial impact of the vote has not been as bad as many forecasted, there are still huge uncertainties surrounding the outlook for the British economy.