UK inflation close to 3% in August after surge in clothing prices
London — UK inflation accelerated more than forecast in August, pushing close to 3% again after the biggest surge in clothes prices in almost three decades.
The jump to 2.9% from 2.6% in July puts the spotlight squarely back on one of the most prominent economic repercussions of the Brexit vote in 2016. The pound has fallen 11% against the dollar since the referendum, boosting import costs and feeding through to prices for everyday household items. The inflation rate has not been higher since 2012.
The numbers, as well as intensifying a squeeze on households, may put fresh pressure on Bank of England policy makers, who are grappling with price growth above their 2% target. While just two of the nine-member monetary policy committee (MPC) voted to increase interest rates from a record-low 0.25% last month, some economists say a third — Andy Haldane — could join them at this week’s meeting.
A six to three vote "could prompt a re-appraisal of the potential path of interest rates," said James Knightley, chief international economist at ING in London. "But we feel that the economic uncertainty brought about by Brexit will lead the committee to hold fire until there is much greater clarity on the UK’s post-Brexit environment."
The data on Tuesday from the UK’s Office for National Statistics also showed that core inflation accelerated more than economists expected last month, reaching the highest since 2011. The pound climbed to a one-year high, jumping 0.8% to $1.3273 as of 9.58am London time.
The inflation pick-up in August was led by clothing and footwear, which surged 2.4% on the month and 4.6% compared with a year earlier. The statistics office said weaker sterling may be partly to blame, with the currency down 14% on a trade-weighted basis since the UK voted to leave the EU.
Separate data on Tuesday showed that companies’ input costs rose 1.6% in August, the most this year, while output prices rose 0.4%.
The pick-up in prices this year is hurting consumers and acting as a drag on the economy.
Data on Wednesday is projected to show wage growth accelerated for a third month in July, though at just more than 2%; this means workers will still be losing out in real terms.
The Bank of England announces its next policy decision on Thursday. A majority of MPC members will probably vote for no change to the benchmark rate, with inflation concerns tempered by the fact the economy expanded just 0.3% in the second quarter, leaving growth the slowest among Group of Seven nations.