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U.k. Inflation Rate Probably Rose To Highest In Nine Months

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U.K. Inflation Rate Probably Rose to Highest in Nine Months

By Jennifer Ryan and Brian Swint

March 17 (Bloomberg) -- The U.K.'s inflation rate probably rose to a nine-month high in February because of record oil and food costs, impeding further Bank of England interest-rate cuts, a survey of economists shows.

Consumer prices probably climbed 2.5 percent from a year earlier, compared with 2.2 percent in January, according to the median forecast of 31 economists in a Bloomberg News survey. The Office for National Statistics will release the data tomorrow at 9:30 a.m. in London.

Crude oil rose to a record above $110 a barrel last week, and wheat costs have doubled, threatening to extend a four-month streak of inflation above the central bank's 2 percent target. Policy makers cut the benchmark interest rate twice since December to cushion the economy from slowing expansion and then held it at 5.25 percent on March 6.

``The bank is right to be concerned that inflation will remain elevated for some time,'' said Alan Clarke, an economist at BNP Paribas SA in London. ``This makes it harder to cut rates quickly even though they're aware of the risks to growth.''

Policy makers raised their forecast for inflation last month and Governor Mervyn King said it may accelerate above 3 percent, more than 1 percentage point above the central bank's target. That would require him, by law, to write a letter of explanation to the government.

Power Bills

Five of the nation's six biggest utilities are raising prices. E.ON AG said on Feb. 7 that its U.K. unit will increase bills for electricity by 9.7 percent and gas by 15 percent. Centrica Plc, the U.K.'s biggest power supplier, raised prices by 15 percent in January.

Consumers' price expectations rose to the highest since at least 1999 last month, a quarterly Bank of England survey showed last week. They predict prices will increase 3.3 percent in the next 12 months, up from 3 percent in November.

Keeping inflation expectations anchored is ``absolutely key,'' John Gieve, deputy governor for financial stability at the central bank, told reporters on March 14. The bank will publish minutes of the March 6 decision, showing how he and other members of the rate-setting panel voted, on March 19.

Policy makers have said they face a dilemma as they assess the risk of inflation against the threat of slowing economic growth as banks squeeze lending to consumers and each other. Three-month Libor, a measure of the cost of borrowing between banks, rose on March 14 by the most since August.

Housing Slump

Property prices tumbled in February into the worst slump since 1990, the eve of the U.K.'s last recession, the Royal Institution of Chartered Surveyors said March 11.

The Treasury's survey of economists in February shows a median prediction of 1.7 percent overall expansion this year, the lowest since 1992 and below the 2 percent midpoint of Chancellor of the Exchequer Alistair Darling's forecast.

Economic growth hasn't slowed enough yet to dent the labor market. Data form the statistics office on March 19 will show the number of people claiming unemployment benefits fell in February after dropping to the lowest since 1975 in January, according to all 25 economists in a Bloomberg News survey.

Consumer spending may still be weakening. Retail sales probably declined 0.2 percent in February, according to the median of 30 forecasts in a Bloomberg News survey. They rose the most in 11 months in January, as stores slashed prices to attract customers.

``Retail sales have only been strong when boosted by discounting,'' BNP's Clarke said. ``It's going to be a bad year for consumption and that's likely to drive growth lower.''

Start of the week bear food for you all.

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I laugh (should be crying) when I see these inflation posts - what does it take for CPI to get over 3% in this era of manipulated stats - a doubling, a tripling of all essential items?

CPI is a joke - it just does not reflect reality - then again the government have the head up their ass so no suprise.


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If these guesses are correct it should shore up sterling a little today.

Especially if Merv follows his remit and begins a series of hikes. TBH, he can do nothing as the crisis is not contained withing the US and is now very much global. IR is not what its about anymore, sad to say.

IN the meantime Sterling is crashing vs. the Euro:

GBPEUR=X 1 17 Mar 1.2802

As the US $ strengthens very slightly vs. Sterling:

GBPUSD=X 1 17 Mar 2.0191

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  • 293 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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