Financial News: UK Inflation Accelerates To 5-Month High

UK Inflation Accelerates To 5-Month High

(RTTNews) - UK consumer price inflation rose to a five-month high in August on renewed increase in fuel prices but the Bank of England is widely expected to hold the interest rate as energy shocks show no sign of broadening.

Inflation advanced to 3.1 percent from 2.9 percent in July, the Office for National Statistics said Wednesday. The rate came in line with expectations and hit the highest level since March.

Meanwhile, core inflation that excludes energy, food, alcohol and tobacco remained unchanged at 2.6 percent in August.

The CPI goods annual rate rose to 2.7 percent from 2.2 percent, while services inflation held steady at 3.4 percent. Transport, particularly motor fuels, made the largest upward contribution to the annual inflation.

ING economist James Smith said headline inflation is likely to rise to 3.4 percent next month with another 3-4 percent rise in petrol/diesel through September.

As there is very little sign that the energy shock is broadening out to other parts of the inflation basket, the Bank of England is set to remain on hold, Smith added.

The BoE is set to announce its policy decision on September 17.

"Given the limited signs of a pick-up in domestic price pressures, the Bank of England's Monetary Policy Committee is likely to keep interest rates unchanged at its next meeting," Confederation of British Industry Lead Economist Martin Sartorius said.

"However, the renewed rise in energy prices means that the Committee will be increasingly alert to the risk of these costs feeding through to persistently elevated inflation," Sartorius added.

Another report from the statistical office showed increases in both input and output price inflation. Higher prices of refined petroleum products were one of the largest contributors to the annual increase.

Input price inflation rose to 6.1 percent from 5.8 percent in the previous month. At the same time, annual growth in output prices climbed to 3.7 percent from 3.3 percent.

On a monthly basis, input prices rebounded 0.3 percent after a 0.8 percent fall and output prices moved up 0.7 percent, following July's 0.4 percent increase.

The ONS said average house prices grew 1.4 percent in July from the last year, down from 1.5 percent increase seen in June. The monthly private rent rose 3.8 percent year-on-year in August compared to 3.7 percent in July.

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