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U.K. Inflation Topped 3% Limit for Seventh Month in September

U.K. inflation exceeded the government’s 3 percent limit for a seventh month in September as higher clothing and food costs kept up price pressures in the economy.

Consumer prices rose 3.1 percent from a year earlier, the Office for National Statistics said today in London. That matched the median forecast of 31 economists in a Bloomberg News survey. Clothing and footwear costs jumped a record 6.4 percent on the month, led by women’s coats and other outerwear.

Inflation is “uncomfortably” above the 2 percent goal as factors that have pushed up the rate offset the drag on prices from the recession, policy maker David Miles said in a speech today. The bank has debated expanding its 200 billion-pound ($318 billion) stimulus plan to aid growth as the government readies the biggest public spending cuts since World War II.

“Inflation will almost certainly be above target all next year,” said Philip Shaw, chief economist at Investec Securities Ltd. in London. “The Monetary Policy Committee will be more reluctant to sanction more quantitative easing given the high headline rate of inflation.”

The pound fell more than 0.1 percent against the dollar after the report and traded at $1.5843 as of 9:40 a.m. in London. The yield on the benchmark two-year government bond was down 3 basis points today at 0.577 percent.

Clothing, Food

Consumer prices stayed unchanged on the month, the statistics office said. Higher costs of clothing, meat and fruit offset a drop in transport, leaving overall inflation unchanged.

Core inflation, which excludes the cost of food, tobacco, alcohol and energy prices, was at 2.7 percent, the statistics office said. Economists forecast 2.6 percent, according to the median of 14 predictions in a Bloomberg survey.

The inflation rate has held above 3 percent since March as higher commodity prices feed price pressures in the economy and a weaker pound boosts import costs. Sterling has fallen by about a fifth on a trade-weighted basis since the start of 2007. Oil prices have more than doubled in the past 18 months, and cotton exceeded $1 per pound for the first time since 1995.

London-based Marks & Spencer Group Plc, the U.K.’s biggest clothing retailer, said Oct. 7 trading conditions are likely to become “more challenging” as commodity costs rise and government raises sales tax in January.

Green’s View

“There’s clearly going to be inflation,” Philip Green, the billionaire owner of Arcadia Group Ltd., said in an interview yesterday with Bloomberg Television. “But I think all the central banks realize they can’t do anything with interest rates in the short-term.” He predicted that U.K. interest rates “don’t go far for the next 18 months, two years.”

Bank of England officials have split on whether to raise interest rates to curb inflation or add stimulus to avert the threat of a further slump.

Policy maker Adam Posen said last month the bank should resume gilt purchases to bolster the economy. His colleague, Andrew Sentance, has argued since June that the recovery is strong enough to withstand measures to tame price gains.

“U.K. inflation now sits uncomfortably above the target,” Miles said today in Dublin. “But I believe that this tells us rather little about the cyclical position of the economy or where inflation will be in future. Underlying forces that were created by the financial crisis and that would have kept inflation low have been offset by other factors that have kept inflation above target for much of the past year.”

Retail price inflation, a measure of living costs used in wage negotiations, was 4.6 percent in September, and the rate excluding mortgage-interest payments was the same. Economists forecast 4.4 percent for both measures, according to the median predictions in Bloomberg News surveys.

The trade deficit narrowed to 8.2 billion pounds in August from 8.7 billion pounds, the statistics office said in a separate report. Exports fell 1.8 percent, while there was a 2.7 percent drop in imports.

To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

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