November 13, 2012 / 9:44 AM / 7 years ago

Inflation shows biggest jump in over a year in October

LONDON (Reuters) - Inflation hit a five-month high in October after a rise in university fees and food prices, dampening the chances that the Bank of England will flag more stimulus when it presents new forecasts on Wednesday.

Annual consumer price inflation jumped to 2.7 percent from 2.2 percent in September - the biggest increase in more than a year - the Office for National Statistics said on Tuesday.

The figures raise the probability the Bank will have to increase its short-term inflation forecasts.

October’s figure was the highest since May, and well above economists’ average forecast of an increase to 2.3 percent.

Sterling rose and British government bonds dropped after the data was released.

“Where do we go from here? Onwards and upwards,” said Scotiabank economist Alan Clarke. “Utility bill increases are on their way. We’ve also got the effect of the U.S. drought and increased food prices to factor in. I don’t think we’re going to get anything like the 2 percent inflation target.”

Inflation hit its lowest level since November 2009 in September, but the central bank had already expected that decline to stall and currently does not forecast inflation will drop below its 2 percent target until the second half of 2013.

Last week the central bank decided not to extend its 375 billion pound programme of bond purchases as Britain’s economy has moved out of recession, though underlying growth remains weak.

Some central bankers have voiced inflation concerns as well as doubts about whether further purchases of government debt can boost growth at a time when major headwinds include ongoing worries about the euro zone and a lack of bank credit.

The main driver for October’s rise in inflation was an increase in maximum university tuition fees to 9,000 pounds a year from just over 3,000 pounds previously, adding 0.3 percentage points to the inflation rate.

Britain’s finance ministry said the rise in inflation was “disappointing”.

Also pushing up inflation were higher food prices, in part due to bad weather raising the cost of potatoes, as well as higher transport costs due to higher second-hand car prices.

Planned rises in gas and electricity prices later this year are likely to push up inflation in future months.

On Wednesday, the Bank will publish a quarterly update to its forecasts. Economists polled by Reuters had expected the Bank to predict inflation at 1.8 percent and growth at 2.0 percent in two years time - close to previous estimates.

Separate figures published by the ONS on Tuesday showed that factory gate inflation held steady at 2.5 percent. But input cost inflation unexpectedly rose an annual 0.1 percent compared to a forecast 0.5 percent decline.

House price data released alongside these figures showed property prices were 1.7 percent up on the year in September. A survey from industry association RICS released overnight pointed to a bottoming out in price falls reported by its members.

Reporting by David Milliken and Sven Egenter; Editing by Hugh Lawson

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