U.K Inflation Not Slowing Down; Rises to 5.5-Year High

• U.K Inflation Not Slowing Down; Rises to 5.5-Year High

The U.K inflation does not appear to be slowing down anytime soon as prices surged to the highest in more than 5 years in September.

Consumer prices climbed 3 percent year-on-year from 2.9 percent in August, the Office for National Statistics said on Tuesday in London. This is the fastest pace of increase since April 2012 and same as projected by Investors King Ltd.

“The increase in consumer prices is likely to push inflation rate to 3 percent from 2.9 percent recorded in August and keep the Bank of England on track to raise interest rate in November to curb escalating prices,” Investors King team of analysts said in early October.

The rising consumer prices continued to pressure the Bank of England to raise interest rates in November, even though new investment in key sectors like construction has dropped in recent time and the economy grew at a mere 0.3 percent rate in the second quarter, weak pound and rising input costs continued to pressure prices and hurt profit of businesses. Therefore, leaving the central bank with no option to further stimulate the economy with record-low interest rate.

Last week, the Office for National Statistics revised up labor cost per unit output in the second quarter to 2.4 percent from 1.6 percent previously reported. This, combined with input-cost inflation that rose to over 7 months high in the construction sector in September will push inflation headline even higher in 2017.

Also, rising gasoline prices amid Iraq and Kurdistan tension means inflation is likely to climb further away from BOE’s 2 percent target in October.

However, few lawmakers believe there is still slack in the economy and see no reason for higher interest rates.

“I still think there is some slack in the economy,” Ramsden told lawmakers, also revealing that he wasn’t part of the majority of policymakers seeing a likely need for higher interest rates soon. “I’m going to approach each MPC meeting as it comes.”

The pound fell 0.59 percent against the US dollar to $1.3173 as of 10:06 a.m. New York time. A further decline below the ascending channel, as shown above, should open up our target 1 at $1.3046 but quick rebound is expected ahead of BoE rates decision and US response to North Korea’s Tuesday missile threat.