U.K. Inflation Slows for Second Month, Led by Cost of Food, Transportation
U.K. inflation slowed for a second month in November, held down by food and transport prices as the prospect of another recession weighed on the economy.
Consumer prices rose 4.8 percent from a year earlier compared with a 5 percent gain in October, the Office for National Statistics said today in London. That matched the median estimate of 34 economists in a Bloomberg News survey.
Bank of England officials expect inflation to drop “sharply” toward the 2 percent target next year and have indicated the risks from the euro-area crisis may prompt another increase in stimulus in February. The Organization for Economic Cooperation and Development has said the economy may already be shrinking.
“Moderating inflation is desperately needed to ease the squeeze on consumers’ purchasing power and provide some much- needed help to the struggling economy,” said Howard Archer, an economist at IHS Global Insight in London. “Inflation should continue to retreat markedly as 2012 progresses.”
The pound climbed against the dollar after the report and was trading at $1.5598 as of 9:55 a.m. in London, up 0.1 percent on the day.
On the month, consumer prices rose 0.2 percent, the statistics office said. Food and non-alcoholic beverage prices rose an annual 4 percent on the year, the least since July 2010, as supermarket promotions continued and good harvests held down prices of fresh produce. Transport prices fell 0.6 percent on the month as petroleum prices declined. There were also downward pressures from clothing prices as well as furniture and household goods.
Inflation has exceeded the bank’s target for 24 months as surging commodity prices, a weaker pound and the government’s sales-tax increase in January stoked price gains. The bank expects inflation to tumble as these factors fall out of the year-on-year comparison.
The outlook for the U.K. economy has darkened amid the escalating crisis in the euro region, the destination for more than half of British exports. The OECD on Nov. 28 predicted Britain’s economy would contract in the current quarter and in the first three months of 2012, marking a technical recession.
Tesco Plc (TSCO), the U.K.’s largest supermarket chain, said on Dec. 8 that domestic sales declined for a fourth straight quarter as increased joblessness and rising fuel and food bills weighed on consumer spending. The retailer, which runs more than 2,700 stores in the U.K., cut the price of 3,000 every-day items in September and widened the program by 1,000 items on Nov. 23 to lure holiday shoppers.
Today’s data showed core annual inflation, a measure that excludes alcohol, food, tobacco and energy prices, slowed to 3.2 percent in November from 3.4 percent the previous month. Retail- price inflation, a measure used in wage negotiations, moderated to 5.2 percent from 5.4 percent. The retail-price index excluding mortgage-interest payments rose 5.3 percent, down from a 5.6 percent gain in October.
The central bank last month cut its forecasts for growth and inflation, which it said is likely to fall below 2 percent in two years. Bank of England Chief Economist Spencer Dale said today the central bank is prepared to expand its 275 billion- pound ($429 billion) stimulus program if needed as economic growth stalls.
“The near-term outlook has weakened very materially,” Dale said in a speech in London today. “Although the precise reasons why the economy appears to have slowed are uncertain, and we can’t rule out some intensification of domestic headwinds, the most likely explanation would seem to be the growing fallout from the euro area as it has lurched from one mini crisis to another.”
The Treasury hailed the figures as “good news for family budgets,” saying the further easing of inflation projected next year will provide additional relief.
“The government is doing its bit to help families with the cost of living, including by freezing council tax and cutting fuel duty at the autumn statement last month,” the Treasury said in a statement.
To contact the reporter on this story: Svenja O’Donnell in London at firstname.lastname@example.org
To contact the editor responsible for this story: Craig Stirling at email@example.com