United Kingdom Inflation

United Kingdom

United Kingdom: Inflation inches up again in October

November 10, 2010

In October, consumer prices added 0.3% over the previous month, which was above the flat reading tallied in September and exceeded market expectations, which had prices rising 0.2%. The figure was mostly driven by higher prices for recreation and culture as well as for transportation, partly reflecting an increased fuel duty on petrol and diesel, which came into effect in October. As a result of the October price increase, annual inflation inched up to 3.2%, which exceeded the 3.0% upper tolerance limit set by the Bank of England (BoE) and prompted the Bank's Governor, Mervyn King, to write the forth letter this year to the Chancellor of the Exchequer. As in previous letters, King stated that inflation is likely to remain elevated throughout 2011 amid higher commodity prices and the VAT hike scheduled for January next year. Persistently high inflation and higher-than-expected growth has lowered pressure on the BoE for further easing of the monetary policy, in particular from embarking on a second round of quantitative easing. At its latest meeting on 4 November, the BoE left the Bank Rate unchanged at 0.50% and maintained the asset purchase facility (quantitative easing) at the current GBP 200 billion, in a decision broadly expected by the market. The BoE projects inflation to exceed 3.0% until the second half of 2011.


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