September 13, 2011

UK inflation edges higher in August

by Kay Mitchell

The Office for National Statistics (ONS) today announced Consumer Price Inflation (CPI) rose to annual rate of 4.5% last month from July’s rate of 4.4%.

However, the figure was in line with analysts’ expectations.

Higher inflation continues to be led by rising food costs but the main reason behind last month’s rise was a 5.1% annual increase in the housing, water, electricity and gas component – which rose the most in more than two years.

Utility companies recently hiked their prices – some by almost 20%.

However, clothing and footwear was also a contributor to higher inflation last month.

UK inflation continues to remain more than double the target of 2% and has been above this level since December 2009 and is expected to remain above target during 2012.

The Bank of England has previously warned that inflation could reach 5% later this year, driven higher by rising energy and food costs but should return to target by 2013.

Meanwhile, Retail Price Inflation (RPI), which includes mortgage costs and is used as the basis for many wage deals, rose to 5.2% in August from 5% in July.

Inflationary pressures are rife throughout the world, particularly in Asia, and many central banks have opted to lift interest rates to combat stubbornly high inflation.

However, the Bank of England last week opted to keep rates at the historic low of 0.5%, suggesting it is reluctant at this stage to lift interest rates as it could be harmful to the economic recovery.

Last month, policymakers Martin Weale and Spencer Dale dropped their call for higher interest rates and joined their fellow Committee members by opting to keep rates low to stimulate the recovery.

The economy appears to be stuttering at present and many experts believe the central bank may re-introduce the quantitative easing (QE) programme – designed to stimulate growth within the economy.

In other news today, the ONS reported that the UK goods trade deficit unexpectedly widened in July.

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