Bloomberg News

U.K. Inflation May Have Slowed to 5.1% in October on Food Costs

November 13, 2011

Nov. 12 (Bloomberg) -- U.K. inflation may have slowed in October as food costs fell and retailers offered discounts, signaling that the squeeze on family budgets may begin to ease.

Consumer prices rose an annual 5.1 percent after a 5.2 percent gain in September, according to the median estimate of 33 economists in a Bloomberg News survey. The Office for National Statistics in London will publish the data at 9:30 a.m on Nov. 15. A day later, the Bank of England will release its latest quarterly economic and inflation forecasts, which Governor Mervyn King will present at a press conference.

The data may force King to write his eighth consecutive letter to Chancellor of the Exchequer George Osborne explaining why policy makers have kept interest rates at a record low, tolerating inflation at more than double their 2 percent target. Bank of England officials last month pledged 75 billion pounds ($120 billion) of bond purchases to fight the threat of a recession and predicted that price growth will slow next year.

“If the September inflation figure wasn’t the peak, then October will be,” said Peter Dixon, an economist at Commerzbank AG in London. “Between now and January and February time, we expect inflation to fall very quickly. King might have to write one more letter after this, with an outside chance of two, but by the spring of next year, his letter-writing days will be behind him.”

The governor must write to the chancellor every three months when the inflation rate strays more than a percentage point from the bank’s target, as required by law. Any letter from King will be published with Osborne’s response.

Temporary Factors

U.K. price pressures have been stoked by an increase in sales tax, a surge in prices for oil, wheat and other commodities earlier this year and a decline in the pound of about a quarter on a trade-weighted basis since the start of 2007. King has argued that these are temporary factors and that inflation will slow “sharply” next year as they fade.

While Britain’s economic expansion accelerated to 0.5 percent in the third quarter, surveys last week showed manufacturing shrank the most in 28 months in October and services growth slowed.

The statistics office said yesterday that U.K. producer- price inflation eased in October to the lowest in five months. Shop-price gains weakened to the slowest this year as flagging consumer demand and competition among supermarkets pushed down food costs, the British Retail Consortium said on Nov. 9.

--With assistance from Mark Evans in London and Joel Rinneby in Stockholm. Editors: Craig Stirling, Andrew Atkinson

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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