Thursday 8 December 2016

UK inflation rate picks up but lags central bank target

Fergal O'Brien

Published 19/08/2015 | 02:30

The pound rose 0.7pc to $1.57 after the report from the Office for National Statistics. Photo: PA
The pound rose 0.7pc to $1.57 after the report from the Office for National Statistics. Photo: PA

Britain's inflation rate unexpectedly rose in July and a core measure of price growth increased to the highest in five months. The pound jumped.

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The change in the headline reading to 0.1pc from zero was mainly driven by smaller clothing discounts in the summer sales this year compared to a year earlier. Economists in a Bloomberg survey had forecast the rate would stay at zero. The core measure - which excludes volatile food and energy costs - increased to 1.2pc from 0.8pc, higher than the 0.9pc reading predicted by economists.

While the figures published yesterday were stronger than anticipated, inflation is still well below the Bank of England's 2pc target. Policy makers have said it will remain low in the short term because of the strength of the pound and a renewed decline in oil prices. Over the longer term, Governor Mark Carney says price growth will accelerate and the time to begin raising the interest rates is approaching.

"Tightness in the labour market is now generating some wage inflation," said Kallum Pickering, an economist at Berenberg Bank in London. "Throughout the rest of the year we'll see further tightness prompting more increases in wages and that should bring on core inflation a bit further."

The pound rose 0.7pc to $1.57 after the report from the Office for National Statistics. Economists forecast that the first increase in the benchmark rate from a record-low 0.5pc will happen in early 2016. Policy maker Kristin Forbes said this week there are risks to delaying a rate increase and she's watching for signs of domestic pressures.

Services inflation, a proxy for domestic price growth, hit to 2.4pc in July, the fastest in four months. (Bloomberg)

Irish Independent

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