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U.K. September Inflation Rate Unexpectedly Stays at 2.7% - (Bloomberg)

Posted by Chris Advincula on Oct 15, 2013 7:27:00 AM

U.K. inflation was unexpectedly unchanged in September as air fares offset a decline in gasoline prices.

Consumer prices increased 2.7 percent from a year earlier, the Office for National Statistics said in London today. The median forecast of 34 economists in a Bloomberg News survey was 2.6 percent. A separate report showed house-price growth accelerated in August, with increases in London driving a national index of values to a record.

The Bank of England has pledged to hold its key interest rate at a record-low 0.5 percent as long as inflation expectations remain anchored to its 2 percent target. With the economy strengthening and consumers facing the prospect of energy-price increases, inflation may be slow to return to the central bank’s goal. Utility SSE Plc (SSE) plans to raise household energy prices by three times the rate of inflation next month.

“The main risk is utility bills, which could rise sharply in coming months and keep inflation remaining well above the 2 percent central target,” said James Knightley, an economist at ING Bank NV in London. “We continue to look for an early 2015 rate hike with sterling remaining under upside pressure.”

The pound was trading at $1.5995 as of 9:54 a.m. London time, up 0.1 percent on the day. The yield on the benchmark 10-year U.K. government bond climbed 6 basis points to 2.8 percent.

Air Fares

The largest upward contribution to the annual inflation rate came from air fares, which fell less last month than in September 2012. That offset a decline in gasoline prices. From the previous month, total consumer prices rose 0.4 percent.

Core inflation, which excludes food and energy prices, accelerated to 2.2 percent in September from 2 percent in August, according to the statistics office.

Retail-price inflation, used in wage negotiations and as a basis for the inflation-linked bond market, slowed to 3.2 percent from 3.3 percent. Excluding mortgage interest payments, inflation by that measure was also 3.2 percent.

In the housing-market report, the ONS said prices for first-time buyers rose an annual 4.9 percent in August, the most in three years. The government this month accelerated its Help to Buy program, aimed at helping first-time buyers to get on the property ladder.

The annual increase in home prices for all buyers was the biggest since October 2010. That pushed the index to 185.5, the highest since records began in 1968. 

London Boom

In London, prices were up 8.7 percent in August from a year earlier. Excluding the capital and the south east, values rose 2.1 percent.

Jon Cunliffe, who will join the Bank of England as deputy governor for financial stability next month, said yesterday the U.K. is not in a housing bubble.

“The picture emerging is that prices are starting to rise, but we’re still coming back from a relatively low base,” Cunliffe said. “And of course it’s a patchy picture because there’s quite a dispersion across the country.”

Separate ONS data showed that factory-gate prices fell 0.1 percent in September from August and were up 1.2 percent compared with a year earlier. Input prices fell 1.2 percent on the month and rose 1.1 percent on the year.

Consumer-price pressures may build following the decision by SSE to raise U.K. household energy prices by an inflation-busting average 8.2 percent, a move that may be followed by other suppliers.

While Conservative Prime Minister David Cameron’s government is seeking a more competitive market to drive down prices, the opposition Labour Party has pledged to freeze energy prices until the start of 2017 if it wins power in the 2015 general election. 


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