Bloomberg News

U.K. Inflation Probably Accelerated in September to King’s Peak

October 14, 2011

Oct. 15 (Bloomberg) -- U.K. inflation probably accelerated in September to a three-year high, which Bank of England Governor Mervyn King says may be the peak before a slowdown that will continue through 2012.

Consumer prices rose 4.9 percent from a year earlier, compared with 4.5 percent in August, according to the median of 35 estimates in a Bloomberg News survey. The Office for National Statistics will publish the data at 9:30 a.m. on Oct. 18 in London.

The Bank of England restarted asset purchases on Oct. 6 to protect Britain’s economic recovery from risks related to the euro-area debt crisis. King said that day the new round of so- called quantitative easing was prompted by “very poor” data from around the world and he forecast that inflation would slow “sharply” next year.

“They’re pretty confident that this represents a peak and I think they’re right,” said Brian Hilliard, chief U.K. economist at Societe Generale SA in London, who forecasts further QE early next year. “It’s clear that inflation has done immense damage to real disposable incomes, so there’s a hope we will see less downward pressure on the consumer next year, but I think we should only have very modest expectations.”

U.K. inflation has been above the central bank’s 2 percent target every month since December 2009 and exceeded the 3 percent upper limit since March 2010. King has said the overshoot is due to the temporary impact of higher oil and commodity prices and a sales-tax increase. As it announced the restart of QE this month, the bank said the “deterioration in the outlook has made it more likely that inflation will undershoot the 2 percent target in the medium term.”

Posen’s Call

Minutes of the Oct. 6 decision will be published a day after the inflation data and will show which policy makers joined Adam Posen’s yearlong call for more stimulus. Until this month, he was alone on the nine-member Monetary Policy Committee in voting for a revival of QE.

Since the decision, Posen, Deputy Governor Charles Bean and policy maker Martin Weale have indicated the bank might add to the emergency stimulus if needed.

“Global growth forecasts have been slashed and with the U.K. suffering from its own domestic problems, policy makers have judged that the inflation threat has vanished,” ING economist James Knightley in London said in a report published yesterday. “It’s all hands to the pump to prevent a return to recession.”

--With assistance from Mark Evans and Scott Hamilton in London. Editors: Eddie Buckle, Craig Stirling

To contact the reporter on this story: Fergal O’Brien in London at fobrien@bloomberg.net

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


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