U.K. Inflation Seen Eluding BOE Goal as Cost Increase
Data tomorrow will show consumer prices rose an annual 2.4 percent last month, compared with a 34-month low of 2.2 percent in September, according to the median forecast of 36 economists surveyed by Bloomberg News. Those figures arrive on the eve of the central bank’s quarterly economic forecasts during a three- day flurry also featuring statistics on jobs and retail sales.
The Bank of England’s predictions may incorporate Governor Mervyn King’s view expressed last month that annual price gains could remain above the Bank of England’s 2 percent target “well into next year.” They will also signal how the Monetary Policy Committee balances that outlook against the risk of a relapse in growth after it halted expansion of its bond-purchase program.
“Unfortunately, this seems as close as the MPC will get to hitting the target for quite some time,” said Philip Shaw, an economist at Investec Securities in London. “Looking further ahead, our forecasts point to higher grain prices and a resumption of gas and electricity tariff increases dragging inflation further away from the target, and it could be as high as 3.5 percent by mid-2013.”
The Office for National Statistics will release the inflation data tomorrow at 9:30 a.m. in London, followed by unemployment and retail sales at the same time on each of the next two days respectively. An acceleration in consumer-price increases would be the first in three months.
The pound was little changed at $1.5904 at 10:38 a.m. in London after touching $1.5880, the weakest since level since Sept. 5. Sterling was at 79.94 pence per euro. The Stoxx Europe 600 Index was almost unchanged at 270.22 as finance ministers prepared to discuss Greek aid in Brussels.
Utilities including RWE Npower Plc and Centrica Plc (CNA)’s British Gas unit are raising household energy tariffs after wholesale gas costs for this winter rose compared with last year. Poor harvests overseas and wet weather in the U.K. have bolstered food-price pressures.
Policy makers are weighing the effects those price increases will have on inflation against the risks to growth after the economy escaped from recession in the third quarter. The Bank of England forecast in August that inflation would slow to below its goal by the end of next year, a prediction it will revisit in the Nov. 14 Inflation Report presentation by King.
Britain’s economic recovery remains threatened by the continued crisis in the euro area, the U.K.’s biggest trading partner, and cooling global growth. Manufacturing data last week showed output barely grew in September, indicating the economy’s rebound lost some momentum, while services and factory surveys signaled cooling activity in October.
Data on Nov. 14 may show whether the labor market remains resilient to any pervading weakness in the economy. Economists surveyed by Bloomberg predict jobless claims probably stayed unchanged in October and the unemployment rate remained at 7.9 percent in the third quarter, the lowest in more than a year.
The next day, retail sales data will show a 0.1 percent monthly decline for October, according to the median forecast of 23 economists in a Bloomberg survey.
The MPC said on Nov. 8 that it doesn’t plan to buy any more bonds beyond the 375 billion pounds ($597 billion) already purchased, concluding a third round of quantitative easing. The next day, the Bank of England said that it will transfer income from gilts it holds under that program to the Treasury in a move that King equates to an easing of monetary conditions.
“We suspect that the Inflation Report will leave the door open to more QE,” said Howard Archer, an economist at IHS Global Insight in London. “While the bank is likely to raise its near-term consumer price inflation forecasts compared to the August projections,” he said, “price pressures should be contained over the coming months by significant excess capacity and still muted economic activity.”
Cooling demand is also affecting growth in Asia. Japan’s economy shrank last quarter as exports tumbled and consumer spending slumped, putting pressure on the central bank to add stimulus and hurting Prime Minister Yoshihiko Noda’s record as he prepares for elections. Gross domestic product fell an annualized 3.5 percent, the most since the earthquake and tsunami in early 2011, according to Cabinet Office data released today in Tokyo.
In Latin America, Mexican industrial production in September probably rose 3.1 percent from a year earlier, the smallest increase since March, according to the median of 16 estimates in a Bloomberg News Survey.
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