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.
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 U.K. economy may already be shrinking.
“There’s a very good chance inflation will be below target by the end of 2012,” Samuel Tombs, an economist at Capital Economics Ltd. in London, said before the report. “We see it getting to about 1 percent and staying there because of the weakness of the economic recovery and spare capacity growing and bearing down on inflation.”
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. Transport prices fell 0.6 percent on the month as petroleum prices declined.
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, 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, an indication more bond purchases may be needed. Tombs at Capital Economics says the bank’s bond-buying program may be expanded to 400 billion pounds ($624 billion) from the current 275 billion pounds.
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