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A generic picture of a some British sterling money in coins and bank notes. BANKG REUTERS/Catherine Benson CRB

UK inflation slips unexpectedly but soaring factory prices herald big rises ahead

WT24 Desk

British inflation slipped unexpectedly last month but factory gate prices shot up at the fastest pace in years after sterling’s Brexit slump, spelling higher prices for consumers in the year ahead,Reuters reports.

Consumer prices rose 0.9 percent compared with a year ago, the Office for National Statistics said on Tuesday, below economists’ expectation for a 1.1 percent annual rise.

But prices for goods leaving factories rose by 2.1 percent, faster than expected and the biggest increase since April 2012. Costs faced by producers for raw material and oil showed a record monthly jump in October, leaping by 4.6 percent.

“After initially pushing up the prices of raw materials, the recent fall in the value of the pound is now starting to boost the price of goods leaving factories as well,” ONS statistician Mike Prestwood said.

“However, aside from fuel, there is no clear evidence that these pressures have so far fed through to the prices in shops.” Earlier this month the Bank of England forecast that inflation would rise to about 2.7 percent around this time next year, as sterling’s big fall after Britain’s vote to leave the EU pushes up the cost of imports.

With wages only expected to grow more slowly, many households are likely to face a squeeze in their living standards next year. The pound’s fall – down 16 percent against the U.S. currency and about 11 percent against the euro – has left suppliers and retailers battling for profits as imported goods become more expensive.

British inflation has been below the Bank of England’s 2 percent target for nearly three years and last year it was zero, the lowest since comparable records began in 1950.

BoE Governor Mark Carney has said the central bank could tolerate some overshoot against its inflation target, to help accommodate economic growth and employment.

But earlier this month it kept interest rates on hold, despite having signalled a cut only months earlier. Retail price inflation – tracked by British inflation-linked government bonds – remained at 2.0 percent.

British government bond yields have risen sharply rising inflation expectations spurred by the pound’s plunge and more recently, bets that President-elect Donald Trump’s spending plans would boost prices globally.

An ONS measure of core consumer price inflation – which strips out changes in the price of energy, food, alcohol and tobacco – slipped back to 1.2 percent in October from 1.5 percent. Economists had expected a smaller fall to 1.4 percent.

Clothing prices and university tuition fees pushed down on the headline rate of inflation last month, but prices paid by consumers for fuels and lubricants rose at the fastest pace since April 2012.

The ONS also released figures for September house prices, which showed an 7.7 percent annual rise across the United Kingdom as a whole, unchanged from August’s rate. Prices in London alone picked up a bit of speed, rising by 10.9 percent, compared with 10.3 percent in August.

 

 

 

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