Rate sur­prises mar­kets

7 Days in Dubai - - BUSINESS -

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.

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