British inflation pushes up

British inflation jumped unexpectedly to a
six-month high in August pushed up by bigger-than-usual seasonal
increases in sea and air fares and sending sterling above $1.32 for the
first time since late July.

 

Consumer price inflation rose at an
annual rate of 2.7 per cent in August compared with 2.5 per cent in
July, according to the Office for National Statistics (ONS).

 

The ONS also said British house prices
rose at the weakest annual rate in nearly five years, dragged down by
the biggest drop in London house prices since 2009 – the latest sign of a
slack housing market since the 2016 Brexit
vote.

 

Wednesday’s data jolted investors. British government bond prices and equities fell.

 

The figures are also likely to surprise Bank of England officials (BoE) which 
had expected inflation to cool to 2.4 per cent in August.

 

The BoE, had last month, raised interest rates for the second time since the financial crisis, 
but pointed to only gradual future increases as it expects
inflation to drift down to near its 2 per cent target in three years’
time.

 

Jeremy Thomson-Cook, an economist with currency firm, 
World First, said the jump in inflation probably reflected a
pick-up in spending by consumers during Britain’s unusually hot summer.

 

“I doubt this is sustainable in the longer term,” he said, noting the continuing squeeze on household spending.

 

“I don’t think this has made Bank of England rate expectations any more concrete.”

 

The rise in inflation in August
represents a setback to the modest recovery in real-terms wage growth
that has helped to support economic growth this year.

 

The fall in the value of the pound in
August on renewed concerns about Brexit deprived consumers of the
benefit of a fall in oil prices in annual terms, the ONS figures showed.

 

“Consumers paid more for theatre shows, sea fares and new autumn clothing last month,” ONS statistician, 
Mike Hardie, said.

 

Consumer price inflation hit a five-year
high of 3.1 per cent last November, when the inflationary effect of the
pound’s tumble after Britain’s June 2016 referendum vote to exit the EU
reached its peak.

 

The ONS said house prices in July rose by
an annual 3.1 per cent across the United Kingdom as a whole compared
with 3.2 per cent in June – the smallest increase since August 2013.

 

House prices in London alone fell 0.7 per cent (year-on-year) in July, the biggest drop since September 2009.

 

Despite August’s rise in the headline
rate of inflation, the ONS data suggested there could be some relief for
consumers in the months ahead.

 

Prices at British factory gates rose 2.9 per cent (year-on-year) in August, the weakest increase in four months.

 

Manufacturers’ costs for materials and energy also rose at the slowest pace in four months.