U.K. inflation held at the highest rate since May last month and pipeline price pressures increased as crude oil costs rose.
Consumer prices rose 2.7 percent from a year earlier, the Office for National Statistics said today in London, matching the median estimate of 36 economists in a Bloomberg News survey. Separate reports showed factory input prices surged the most in five months in January while house prices gained in December by the most since November 2010.
The Bank of England will publish new economic projections tomorrow after it said inflation may accelerate in the coming months and stay above its goal for the next two years. With the economic recovery struggling to gain momentum, the central bank said it was right to “look through” this period of above-target price growth.
“The ‘high inflation, low growth’ dilemma will probably once again be the main topic of the Inflation Report,” Joost Beaumont, an economist at ABN Amro Bank in Amsterdam, said in an e-mailed statement. “We expect the BOE to stay on the sidelines. The euro crisis is likely to remain contained and we see the U.K. economy gradually regaining some traction.”
U.K. inflation has been boosted in recent months by price increases by some of Britain’s biggest electricity and gas companies. There may be a further impact next month when another increase by E.ON AG is included in the February data, the ONS said. The pound’s decline is also adding upward pressure by increasing import costs.
The pound fell to a six-month low of $1.5573 today and was trading at $1.5599 as of 11:00 a.m. London time, down 0.4 percent from yesterday. Sterling has fallen about 4.1 percent against the dollar this year. Versus the euro, it has weakened about 6 percent.
Today’s report also showed that retail-price inflation, a measure used in wage negotiations, accelerated to 3.3 percent in January, the fastest in nine months, from 3.1 percent in December. The retail-price index excluding mortgage-interest payments also rose an annual 3.3 percent.
The higher RPI figure “serves to reinforce the near-term price ‘stickiness’ theme,” said Ross Walker, an economist at Royal Bank of Scotland Group Plc in London. “We expect inflation to remain stuck around current levels until the second half.”
Bank of England policy makers held their target for bond purchases at 375 billion pounds ($587 billion) last week as they assessed the impact of their credit-boosting Funding for Lending Scheme. Governor Mervyn King will publish new forecasts for growth and inflation at a press conference at 10:30 a.m. in London tomorrow.
With the economy at risk of slipping back into recession, the BOE said on Feb. 7 that U.K. “is set for a slow but sustained recovery.” It also said that inflation has remained “stubbornly” above its goal.
“We expect the BOE to lift its inflation forecasts, while lowering its growth projections, at least in the near term,” Beaumont said. “We expect the BOE to stay on the sidelines.”
Separate data from the statistics office today showed U.K. input prices surged 1.3 percent in January from the previous months and 1.8 percent on the year. The monthly increase in raw-material costs was led by crude oil, which jumped 3.1 percent. There was also a 1.6 percent rise in imported metals.
Factory output prices rose 0.2 percent in January from December, matching the median forecast in a survey. From a year earlier, output prices increased 2 percent.
Elsewhere today, India’s industrial output unexpectedly slid in December for a second month as demand falters in an economy expanding at the weakest pace in a decade. Production at factories, utilities and mines fell 0.6 percent from a year earlier, compared with a revised 0.8 percent drop in November. The median of 29 estimates in a Bloomberg News survey was for a gain of 1 percent.
Also in Asia, Indonesia and Sri Lanka left borrowing costs unchanged. In Russia, Bank Rossii held the refinancing rate at 8.25 percent after inflation surged to a 15-month high.
In the U.K., the statistics office said the biggest upward impact on the 12-month inflation rate came from alcohol and food prices. From the previous month, consumer prices fell 0.5 percent, led by a 5.4 percent decline in clothing and footwear costs. Core annual inflation, which excludes alcohol, food, tobacco and energy prices, slowed to 2.3 percent from 2.4 percent. That’s faster than average annual wage growth.
A U.K. Treasury spokesman said the government’s announcements on an increase in the tax-free personal allowance and a more than two-year freeze on fuel duty will help living costs.
The statistics office also reported today that house prices rose an annual 3.3 percent in December up from a 2.2 percent increase the previous month and the biggest gain since November 2010, when it was 3.7 percent. In London, home values rose 6.4 percent in December from a year earlier.