Inflation in U.K. Accelerates More Than Forecast to Match 5.2% Record High

U.K. inflation accelerated to match a record high in September, a surge Bank of England policy makers set aside as they shifted their focus to combating the threat of another recession.

Consumer prices rose 5.2 percent from a year earlier, compared with 4.5 percent in August, the Office for National Statistics said in London today. That matched the record high reached in September 2008, which was the highest since comparable records began in 1997. The median estimate of 35 economists in a Bloomberg News survey was 4.9 percent. Bank of England Governor Mervyn King has said consumer-price growth will probably peak in September and slow “sharply” in 2012.

The Bank of England restarted asset purchases on Oct. 6 to protect Britain’s recovery from risks related to the euro-area debt crisis, and some officials have since signaled they may add to the emergency stimulus if needed. King will deliver a speech in Liverpool later today and minutes of the decision showing how policy makers voted this month will be published tomorrow.

“It doesn’t matter, they’re more interested in what’s happening to economic growth,” said George Buckley, an economist at Deutsche Bank AG in London, who expects the central bank to add to stimulus again in February. “We’ll have a recession in Europe and there’s a good chance we get pulled into one if Europe continues to weaken.”

Utility Bills

The pound fell as much as 0.3 percent against the dollar today and traded at $1.5736 as of 11:50 a.m. in London, little changed from yesterday. U.K. government bonds stayed higher, with the 10-year yield five basis points lower at 2.48 percent.

On the month, consumer prices rose 0.6 percent in September, with electricity and gas surging 10.2 percent. On the year, gas prices were up 13 percent and electricity increased 7.5 percent. Britain’s six major utility companies have all increased prices in recent months and the statistics office said four of the companies were captured in August and September and the final two will affect October inflation data.

Retail-price inflation accelerated to 5.6 percent from a year earlier, the highest since June 1991, from 5.2 percent. Economists forecast a reading of 5.4 percent. Excluding mortgage costs, it was at 5.7 percent.

Inflation Target

King is due to address the Institute of Directors at 8 p.m. Barclays Capital economist Chris Crowe said the Monetary Policy Committee faces a “communications challenge” as it eases policy while inflation is above its 2 percent target.

“The MPC rightly focuses on medium-term price pressures rather than on near-term inflation in setting policy,” Crowe said. “We would expect the governor to meet the challenge head on” in his speech today.

U.K. inflation has been above the central bank’s goal since December 2009 and exceeded the 3 percent upper limit since March 2010. King has said the overshoot is due to the temporary impact of higher oil prices and a sales-tax increase.

Policy makers Adam Posen, Martin Weale and Deputy Governor Charles Bean indicated last week the bank might expand bond purchases further if needed. On the day so-called quantitative easing was increased by 75 billion pounds ($118 billion) to 275 billion pounds, the central bank said the “deterioration in the outlook has made it more likely” that inflation will undershoot the bank’s target in the medium term.

“I don’t think they’re ignoring their remit, but it’s quite right that they’ve been focused over the last three years on reestablishing growth,” former Bank of England policy maker John Gieve said on BBC radio today. “Right now, with the worries about euro sovereign debt and bank funding and lending tightening up again, they’re clearly very alarmed.”

The minutes of the MPC’s Oct. 6 decision will show which officials joined Posen’s yearlong call for more stimulus. Until this month, he was alone in his vote on the nine-member MPC.

While economists at Barclays forecast the MPC was unanimous in its decision, Royal Bank of Scotland Group Plc said Chief Economist Spencer Dale may have been “a lone voice of dissent.” The report on the meeting will be published at 9:30 a.m. in London tomorrow.

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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