British inflation jumps, pushing pound to one-year dollar high

Screen Shot 2017 09 12

Screen Shot 2017 09 12

The gain came after the biggest rise in clothes and footwear prices in nearly three decades, which surged 2.4% on the month and 4.6% compared with a year earlier.

United Kingdom inflation beat forecasts to rise to 2.9% in August, after stalling at 2.6% in July, with record uplifts in clothing costs contributing to the increase, according to the Office for National Statistics.

The July figure had seen inflation stumble for the first time since October and the pound sank as speculation circled that lower inflation may relieve pressure on the Bank of England (BoE) to raise rates.

The house price index climbed 5.1% year-over-year in July, the same rate of rise as in June, which was revised up from a 4.9% increase reported earlier.

Clothing and footwear was one of four sub-sectors of the ONS's basket of goods that saw price growth reach a four-year high last month.

However markets are likely to be more focused on the accompanying wage data as economists forecast that average earnings will have risen from 2.1% to 2.3% over the same period, alleviating some of the pressures of soaring inflation on United Kingdom consumers. Yet it looks likely that inflation will fall back in the coming months as the effect of Brexit-induced sterling weakness fall out of the year-on-year calculation'.

"We are now starting to see the risk premium-related overshoot in EUR/GBP unwind", ING analysts Viraj Patel and James Knightley wrote in a note on the inflation release.

"The number has put fresh pressure on the BOE to change their stance towards the monetary policy", he said, with members of the Monetary Policy Committee meeting this week to decide whether to inch interest rates higher or adjust other measures. Economists had expected the figure to rise to 2.8 per cent.

"With mixed signals on the current strength of the economy and the majority of the Committee appearing to be comfortable with a temporary, exchange-rate driven pick-up in headline inflation, we don't think that the MPC will be panicked into raising interest rates imminently", he said.

"Over the long term, inflation is rarely a country-specific phenomenon, especially for developed, open, market economies".

"The combination of this along with high levels of debt, creates the threat of deflation - the stuff of nightmares for central bankers - and explains why they remain so cautious to "normalise" monetary policy at present".

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