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U.K. Inflation Cools to 2.2%, Least in Almost Three Years

U.K. inflation slowed to the least in almost three years in September as electricity and gas price increases a year earlier dropped out of the index.

Consumer prices rose 2.2 percent from a year earlier, the smallest gain since November 2009 and down from a 2.5 percent gain in August, the Office for National Statistics said today in London. That matched the median forecast of 37 economists in a Bloomberg News survey. The largest downward effect was from utility bills which knocked 0.43 percentage point off the rate.

Bank of England policy makers face a crunch decision next month on whether to expand their stimulus program again as some officials raise concerns about the inflation outlook. While the central bank forecasts that price growth will ease below its 2 percent target next year, planned price rises by Britain’s biggest power companies may slow the pace of cooling.

“There is still some room for further policy easing but the stickiness of inflation in the face of such a large activity shock to the economy is a reminder to policy makers that this scope is not unlimited,” said David Tinsley, an economist at BNP Paribas SA in London. They “will need to revise up their short-term outlook for inflation.”

From the previous month, consumer prices rose 0.4 percent in September, the statistics office said.

The pound rose against the dollar and was at $1.6093 as of 11:21 a.m. in London. U.K. 10-year gilts declined, pushing the yield up 1 basis point to 1.771 percent.

Energy Prices

Core annual inflation, which excludes alcohol, food, tobacco and energy prices, remained at 2.1 percent in September from August, according to today’s report. Retail-price inflation, a measure used in wage negotiations, slowed to 2.6 percent from 2.9 percent. The retail-price index excluding mortgage-interest payments also rose an annual 2.6 percent.

Andrew Goodwin, an economist at the Ernst & Young ITEM Club, said the September inflation data “is likely to be as good as it gets” in the short term.

Scottish Power Ltd., a unit of Iberdrola SA, along with RWE Npower Plc and Centrica Plc, all announced energy-price increases in recent weeks. Wholesale gas costs for this winter are up about 13 percent from the same season last year as North Sea supplies dwindle, Centrica says.

U.S. Prices

In the euro area, inflation remained at 2.6 percent in September, the European Union’s statistics office in Luxembourg said today. That’s lower than an initial estimate of 2.7 percent. U.S. consumer prices probably rose 0.5 percent last month from August, economists said in a survey before a report later today. So-called core prices, which exclude volatile food and energy costs, may have risen 0.2 percent.

Britain’s statistics office also said today that factory-gate prices rose 0.5 percent in September from August and were up 2.5 percent on the year. The biggest contributor to the monthly increase was petroleum products. Input prices fell 0.2 percent in September from the previous month and dropped 1.2 percent on the year.

The Bank of England’s current round of bond purchases finishes next month and officials will decide at their Nov. 7-8 meeting whether to increase the target from the current 375 billion pounds ($604 billion). Minutes of the Monetary Policy Committee’s October meeting, which may provide insights into officials’ views, will be published tomorrow.

The MPC will have new forecasts for growth and inflation that will inform its next decision. In August, it predicted that the inflation rate would fall below its target in the fourth quarter of 2013, to about 1.9 percent. Inflation has been above the Bank of England goal every month since December 2009.

Separate data today showed that U.K. house prices rose 1.8 in August from a year earlier to an average 234,000 pounds. That’s down from a 2 percent pace in July. Prices in London surged an annual 6.3 percent, according to the report.

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