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UK inflation rises in June on food and clothes prices UK inflation rises in June on food and clothes prices
(about 2 hours later)
Food price rises and a delayed summer clothes sales by high street retailers lifted Britain's inflation rate to a five-month high in June, well above economists' forecasts. Food price rises and a delayed summer clothes sales by high street retailers lifted Britain's inflation rate to a five-month high in June, well above forecasts.
The bigger-than-expected rise in the consumer price index (CPI) measure of inflation to 1.9% in June from 1.5% in May will further cloud the picture for Bank of England policymakers as they weigh up price pressures in the economy and decide when to raise interest rates from their record low. Markets have priced in a rate hike from 0.5% by the end of the year but economists have been more divided over when the move will come.The bigger-than-expected rise in the consumer price index (CPI) measure of inflation to 1.9% in June from 1.5% in May will further cloud the picture for Bank of England policymakers as they weigh up price pressures in the economy and decide when to raise interest rates from their record low. Markets have priced in a rate hike from 0.5% by the end of the year but economists have been more divided over when the move will come.
"The news will further fuel expectations that the Bank of England will start raising interest rates sooner rather than later, with November looking the most likely month for the first hike," said Chris Williamson, chief economist at data specialists Markit, whose own business surveys have shown activity picking up."The news will further fuel expectations that the Bank of England will start raising interest rates sooner rather than later, with November looking the most likely month for the first hike," said Chris Williamson, chief economist at data specialists Markit, whose own business surveys have shown activity picking up.
Separate official figures showed house prices rose at a faster pace in May, up by an annual 10.5% and in London they soared a record 20.1%. That is likely to cause concern at the Bank, where governor Mark Carney has highlighted the risk of rising house prices to the broader UK recovery. Separate official figures showed house prices rose at a faster pace in May, up by an annual 10.5% and in London they soared a record 20.1%. That is likely to cause concern at the Bank, where the governor, Mark Carney, has highlighted the risk of rising house prices to the UK recovery.
"With inflation almost hitting the Bank of England's 2.0% target, the housing market booming, the economy growing strongly with no signs of momentum being lost and unemployment plummeting, the case for higher interest rates is building," added Williamson."With inflation almost hitting the Bank of England's 2.0% target, the housing market booming, the economy growing strongly with no signs of momentum being lost and unemployment plummeting, the case for higher interest rates is building," added Williamson.
Economists in a Reuters poll had forecast a small rise in inflation to just 1.6% but a combination of factors lifted it higher, the Office for National Statistics (ONS) said. The retail price index measure of inflation, which is broader and includes housing costs, also came in stronger than expected, rising to 2.6% from 2.4% in May.Economists in a Reuters poll had forecast a small rise in inflation to just 1.6% but a combination of factors lifted it higher, the Office for National Statistics (ONS) said. The retail price index measure of inflation, which is broader and includes housing costs, also came in stronger than expected, rising to 2.6% from 2.4% in May.
The main upward effects on CPI inflation, the rate targeted by the BoE, came from clothing and footwear, where prices rose between May and June this year but fell during the same period last year, which is typical for the summer sales season. An ONS statistician said there were signs warm weather this year prompted retailers to delay their usual discounts. Economists said this was likely to be reversed in July. The main upward effects on CPI inflation, the rate targeted by the BoE, came from clothing and footwear, where prices rose between May and June this year but fell during the same period last year, which is typical for the summer sales season. An ONS statistician said there were signs that this year's warm weather prompted retailers to delay their usual discounts. Economists said this was likely to be reversed in July.
There was also upward pressure from food and non-alcoholic drinks, where again prices rose this year and fell last year. Airfares rose by more this year than in 2013 and furniture prices also picked up more than a year ago.There was also upward pressure from food and non-alcoholic drinks, where again prices rose this year and fell last year. Airfares rose by more this year than in 2013 and furniture prices also picked up more than a year ago.
There were no large downward effects on inflation and just a small drag from perfume price falls this year.
The unexpectedly strong pick-up in inflation took markets by surprise and the pound strengthened to a session high of $1.7133 after the data. Sterling has already risen markedly against other major currencies over the last year as expectations grow that the Bank of England will move before other big central banks to end the ultra-loose monetary policy brought in during the financial crisis.The unexpectedly strong pick-up in inflation took markets by surprise and the pound strengthened to a session high of $1.7133 after the data. Sterling has already risen markedly against other major currencies over the last year as expectations grow that the Bank of England will move before other big central banks to end the ultra-loose monetary policy brought in during the financial crisis.
"It currently looks a very close call as to whether the Bank of England will raise interest rates at the end of this year or hold off until early-2015. Indeed, there will undoubtedly be many swings in interest rate expectations over the coming weeks and months," said Howard Archer, economist at IHS Global Insight."It currently looks a very close call as to whether the Bank of England will raise interest rates at the end of this year or hold off until early-2015. Indeed, there will undoubtedly be many swings in interest rate expectations over the coming weeks and months," said Howard Archer, economist at IHS Global Insight.
The Treasury focused on the fact that inflation was still below the target.The Treasury focused on the fact that inflation was still below the target.
"The government's long term economic plan is working, with today marking the 6th consecutive month that inflation has been below the Bank of England's 2% target," said a spokesman. "The government's long-term economic plan is working, with today marking the sixth consecutive month that inflation has been below the Bank of England's 2% target," said a spokesman.
The Bank, which sets policy with a view to targeting inflation two years out, will also want to see whether wages are picking up and to what extent they could lift broader inflation in the future months. There was some reassurance for policymakers on pipeline inflation pressures in separate producer prices figures on Tuesday. The data showed producers' costs continued to fall last month and there was barely any rise in what they charged customers – so-called factory gate prices. The Bank, which sets policy with a view to targeting inflation two years out, will also want to see whether wages are picking up and to what extent they could lift broader inflation in the future months. There was some reassurance for policymakers on pipeline inflation pressures in separate producer prices figures on Tuesday. The data showed producers' costs continued to fall last month and that there was barely any rise in what they charged customers – so-called "factory gate prices".
The latest figures on pay are out on Wednesday but are widely expected to show wage rises continuing to lag well behind inflation, so falling in real terms.The latest figures on pay are out on Wednesday but are widely expected to show wage rises continuing to lag well behind inflation, so falling in real terms.