UK inflation unexpectedly stays at highest since May
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UK inflation unexpectedly stays at highest since May

www.reuters.com   | 18.12.2012.

LONDON (Reuters) - UK inflation stayed at its highest level since May last month, confounding forecasts it would ease and potentially giving the Bank of England less room to resume quantitative easing to support the struggling economy.
UK inflation unexpectedly stays at highest since May

The data released on Tuesday, showing annual consumer price inflation held at 2.7 percent after a surprise jump in October, will reinforce Bank of England concerns that price pressures may prove persistent and restrain consumer spending.

Economists had forecast a dip in inflation to 2.6 percent in November.

High inflation, which peaked at 5.2 percent last year, has weighed on consumer spending, holding back the economy's recovery from its second recession in four years.

A fall in petrol prices was not enough to outweigh price rises for household bills for electricity and gas, as well as food, the data from the Office for National Statistics showed.

"I was a little surprised on CPI because I was expecting utility prices to have less of an impact. There are still quite a lot of utility price increases in the pipeline," said Jens Larsen, economist at RBC Capital Markets.

In addition, annual services price inflation accelerated to 4.2 percent, its highest since December 2011.

In its quarterly forecasts released last month, the Bank of England said British inflation was likely to be significantly higher over the next 18 months than expected in August.

The central bank's projections showed that it would take until the third quarter of 2014 before inflation fell below its 2 percent target, nine months later than predicted in August, despite sluggish economic growth.

Stubbornly high inflation deterred some policymakers from approving another cash boost for the economy in November, and earlier this month the BoE again voted against more government bond purchases.

Minutes of its last policy meeting due to be released on Wednesday will provide an insight into what drove that decision.

Worries about price rises are likely to have been among the reasons, as rate-setter Paul Fisher said last week that he would wait for signs that inflation was coming down before voting to extend asset purchases beyond the current total of 375 billion pounds ($607 billion).

Investec economist Philip Shaw said inflation was likely to rise above 3 percent over the next few months, which he said could stop the central bank's Monetary Policy Committee from injecting more stimulus into the fragile economy.

"We feel a likely rise in inflation is going to result in the MPC keeping policy on hold, but much depends on how weak the economy is and, if we were to see a very weak patch in activity, then the MPC could look through a period of increased inflation rates," he said.

There was some good news on underlying inflation pressures from separate ONS data on producer prices.

It showed that annual factory-gate inflation eased unexpectedly in November to 2.2 percent - its lowest since July - from an upwardly revised 2.6 percent in October, as input costs fell 0.3 percent on the year.

The annual rate of fuel cost inflation eased to its slowest since February 2011, though the cost of imported food rose sharply.

(Additional reporting by Peter Schwartzstein and Dasha Afanasieva; Editing by Susan Fenton)



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