UK Inflation Could Pressure Central Bank Action

Food price rises and a delayed summer clothes sales by high street retailers lifted Britain’s inflation rate to a five-month high in June, well above forecasts.

The bigger-than-expected rise in the consumer price index (CPI) measure of inflation to 1.9% in June from 1.5% in May will further cloud the picture for Bank of England policymakers as they weigh up price pressures in the economy and decide when to raise interest rates from their record low. Markets have priced in a rate hike from 0.5% by the end of the year but economists have been more divided over when the move will come.

“The news will further fuel expectations that the Bank of England will start raising interest rates sooner rather than later, with November looking the most likely month for the first hike,” said Chris Williamson, chief economist at data specialists Markit, whose own business surveys have shown activity picking up.

Separate official figures showed house prices rose at a faster pace in May, up by an annual 10.5% and in London they soared a record 20.1%. That is likely to cause concern at the Bank, where the governor, Mark Carney, has highlighted the risk of rising house prices to the UK recovery.

“With inflation almost hitting the Bank of England’s 2.0% target, the housing market booming, the economy growing strongly with no signs of momentum being lost and unemployment plummeting, the case for higher interest rates is building,” added Williamson.

via The Guardian

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