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U.K. Inflation Rate Probably Declined to Lowest in Five Months

Oct. 12 (Bloomberg) -- U.K. inflation probably slowed in September, pushing its average for the third quarter below the level forecast by the Bank of England.

Consumer prices rose 2.6 percent from a year earlier compared with 2.7 percent in August, according to the median of 34 economists in a Bloomberg News survey. That would be the least since April. Core inflation, which excludes food and energy costs, remained at 2 percent, a separate poll showed.

The decline would put the average rate for the quarter at 2.7 percent, below the 2.8 percent in the Monetary Policy Committee’s August projections. It still leaves inflation above the central bank’s 2 percent target, and the improving economic recovery and energy-price increases may add to upward pressure.

“Inflation is expected to drift gradually lower in the remainder of this year,” said Ross Walker, an economist at Royal Bank of Scotland Group Plc in London. “But with an underlying strengthening in the recovery, another round of hefty utility price hikes in the pipeline, and a more accommodative MPC policy remit, the risks remain skewed towards an ongoing overshoot of the target in 2014.”

The Office for National Statistics will publish the data on Oct. 15. Walker forecasts a 2.6 percent inflation rate. Michael Saunders at Citigroup Inc., who also predicts 2.6 percent, cited base effects from gasoline prices, which rose sharply in September 2012, as a factor. Projections in the Bloomberg survey range from 2.4 percent to 2.7 percent.

The BOE kept its key interest rate at a record-low 0.5 percent this week and its bond-buying program on hold at 375 billion pounds ($598 billion). Governor Mark Carney introduced forward guidance in August, pledging to keep interest rates unchanged until unemployment falls to 7 percent. The policy is voided if inflation expectations become dislodged.

Separate data next week will show the jobless rate in the three months through August remained at 7.7 percent, economists said in another survey. The ONS will publish the labor-market data on Oct. 16.

To contact the reporters on this story: Fergal O’Brien in London at fobrien@bloomberg.net; Mark Evans in London at mevans8@bloomberg.net

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

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