UK Inflation Accelerates More Than Forecast In August

Marco Green
September 13, 2017

Further downside pressure for the Euro Pound exchange rate came on the back of August's United Kingdom consumer price index data, plunging the pairing to a one-month low.

Meanwhile the Pound may rocket up during the European session on Tuesday as the United Kingdom releases its latest CPI figures, with economists forecasting that it will show that inflation jumped from 2.6% to 2.8% in August.

Likewise, prepared meals, snacks and candies as a category turned dearer with the rate of price rise at 1.96 per cent from 0.43 per cent in July.

The inflation for housing increased to 5.58%, while that for miscellaneous items was higher at 3.85% in August 2017.

"If inflation doesn't fall back for whatever reason - the most likely reason would be sterling weakness on account of Brexit debates - then the need to start bringing forward rate hikes and increasing their number intensifies".

As per the inflation data, food inflation in August moved up to 1.52 per cent. Economists had expected the figure to rise to 2.8 per cent.

Analysts polled by Reuters had expected CPI inflation would edge up to 3.20%, compared with 2.36% in July.

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Yesterday's data hinted at some future price pressure as the costs of raw materials for manufacturers and of goods leaving factories increased slightly.

Food price inflation for urban areas stood at 1.67 per cent in August 2017 against (-) 0.99 per cent in July 2017 and 5.10 per cent in August previous year.

The ONS said excluding oil prices and other volatile components such as food, core consumer price inflation rose by 2.7 per cent, stronger than economists' expectations of 2.5 per cent. The cost of inputs, which are mainly imported, bounced up by 7.6% y/y from a 6.2% gain seen in July (downwardly revised from 6.5%), surpassing the forecast of 7.3%.

Beyond the currency effect, he adds that underlying pressures working against inflation include wage growth that remains below long-term averages and sluggish productivity growth.

However, for the majority on the MPC the key metric is likely to be domestic inflation, which means that tomorrow's employment and wage growth data will also generate considerable interest'.

'After a lull over the summer both leveraged and real money investors have been heavy buyers of GBP of late. the weekly net flows into sterling are at their strongest level since June.

Other reports by Click Lancashire

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