United Kingdom inflation hits five-year high of 3%

UK inflaiton is rising copy

Nathan Sweeney, senior investment manager at Architas, agreed a rate rise was now likely next month but said the bigger question was where the Bank went to after that, given that inflation had probably now peaked and the economy was slowing down in response to Brexit.

If it had risen any further, Bank of England Governor Mark Carney would have to write to Treasury chief Philip Hammond explaining why inflation is more than a percentage point above the 2% target and what he and his colleagues at the central bank were going to do about it.

July and August data showed consumer prices rose by 2.6% and 2.9% respectively-the highest since 2012.

The rate of inflation hit a five-year high in September, adding to expectations that the Bank of England will increase interest rates next month. But, if there are firmer signs that inflationary pressures are building, then she would be inclined to agree with the rate hiking preference of the BOE majority.

"I think we are back where we started in terms of the balance of views", she said. In late-morning trading, it was up 0.1 percent at $1.3268.

"Inflation rising potentially above the 3 percent level in coming months is something that we have anticipated", Carney told lawmakers in Britain's parliament, saying the BoE had said before last year's Brexit vote that a fall in sterling would push up prices.

The 15% or so drop in the pound against a range of currencies has ratcheted up the cost of imported goods such as food and energy.




However, the impact of the lower exchange rate on inflation is set to ease as the annual change of prices due to the pound's decline drops out of the comparison.

The central bank's upcoming economic projections, released on November 2 alongside the rate decision, are set to show growth remaining weak and inflation edging lower.

But the BoE surprised investors last month when it said most of its rate-setters expected to increase borrowing costs in the coming months, partly because Brexit would lead to higher inflation in Britain.

The Bank's new deputy governor, Dave Ramsden, distanced himself from more hawkish MPC members by saying he was not close to voting for a hike.

"Overall, today's data are consistent with our view that the Monetary Policy Committee will raise interest rates in November, but it won't be panicked into doing so by concerns about inflation".

Mr Carney said it is "more likely than not" that he will be writing such a letter in the coming months. We expect inflation to approach summit in October.

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