Bloomberg News

U.K. Inflation Accelerates to 4.5% as Clothes Prices Jump

September 13, 2011

(Updates with comment from economist in fourth paragraph.)

Sept. 13 (Bloomberg) -- U.K. inflation accelerated in August as the end of seasonal discounts boosted prices for items such as clothes and furniture.

Consumer prices rose 4.5 percent from a year earlier, the fastest in three months, compared with 4.4 percent in July, the Office for National Statistics said today in London. That matched the median estimate of 34 economists in a Bloomberg News survey. A separate report showed exports and imports rose to record levels in July.

The Bank of England left its key interest rate at a record low last week as policy makers attempted to steer a path between a faltering recovery and inflation that’s more than double their goal. While the central bank forecasts price growth may accelerate to 5 percent in the coming months, Goldman Sachs Group Inc. and Citigroup Inc. have said the central bank may resume emergency asset purchases by November to boost growth.

“Even though inflation is higher than the bank wants and will go higher in the months ahead, their strategy has been through most of this year is to focus more on growth,” said Peter Dixon, an economist at Commerzbank AG in London. “The outlook is pretty grim. Quantitative easing is increasingly going to be an item on the agenda.”

The pound remained lower against the dollar after the data were released. It was at $1.5777 as of 9:48 a.m. in London, down 0.5 percent from yesterday. It earlier dropped to $1.5762, the lowest in eight months.

French Inflation

On the month, consumer prices climbed 0.6 percent in August, the statistics office said. Clothes prices jumped 3.7 percent, a record for August, while household utility costs rose 0.5 percent.

The end of summer sales also boosted prices in France, according to separate data published today. Its inflation rate rose to 2.4 percent, the highest in almost three years, from 2.1 percent in July, national statistics office Insee said.

In the U.K., core inflation, which excludes costs of energy, alcohol, food and tobacco, remained at 3.1 percent in August from the previous month.

Food and drink prices rose 0.1 percent on the month and were up 6.2 percent from a year earlier. Unilever, the world’s second-biggest maker of consumer goods, said on Aug. 4 that the London- and Rotterdam-based company increased prices by the most in more than two years in the second quarter as it passed on surging costs for ingredients such as palm oil and sugar.

Retail price inflation, a measure of the cost of living used in wage negotiations, accelerated to 5.2 percent from 5 percent. Economists forecast a reading of 5.1 percent. Excluding mortgage costs, it was at 5.3 percent.

Spending Power

Britons are seeing their spending power erased at the fastest pace since the 1970s as wage growth fails to keep up with inflation and the government implements the biggest budget cuts since World War II. Consumer price pressures are being fuelled as British utility companies boost electricity and gas prices because of rising commodity costs earlier in the year.

The U.K. economy grew just 0.2 percent in the second quarter and gauges of manufacturing, services and construction growth all declined in August.

In a separate report, the statistics office said the U.K. goods trade deficit widened to 8.92 billion pounds ($14.1 billion) in July from 8.87 billion pounds in June. While exports rose 2 percent on the month, that was outpaced by a 3.8 percent jump in imports. Both rose to record levels.

The trade gap in goods and services was 4.45 billion pounds, compared with 4.5 billion pounds in June, the statistics office said.

--With assistance from Mark Evans in London. Editors: Fergal O’Brien, Craig Stirling

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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