U.K. Inflation Rate Unexpectedly Rises on Food Prices, Pound
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By Svenja O'Donnell
March 24 (Bloomberg) -- The U.K. inflation rate unexpectedly rose in February after higher food costs and the weakness of the pound sustained price pressures even as Britain's recession deepened.
Consumer prices rose 3.2 percent from a year earlier, the Office for National Statistics said today in London. The median forecast of 28 economists was for 2.6 percent. Officials said that Bank of England Governor Mervyn King will explain the increase in a letter to the government today after the rate breached its 3 percent upper limit.
Bank of England policy makers say the higher cost of imports from the British currency's drop may make inflation volatile while the recession defuses prices pressures from the economy. The bank has started printing money to fight the slump and King says the outlook for consumer prices will determine how long they need to keep doing so.
``We've got such huge spare capacity in the economy,'' James Knightley, an economist at ING Financial Markets in London. ``Inflation pressures are going to be very weak indeed in the months to come. The process will continue through this year and into the next.''
Inflation accelerated by 0.2 percentage point from 3 percent in January, the statistics office said. The rate increased for the first time in five months.
Prices of food and non-alcoholic drinks increased, boosted by gains in the cost of vegetables after poor crops in Spain of cucumbers and courgettes, the statistics office said. The data also showed the effects of the exchange rate pushed up the cost of imports, influencing this month's figures.
Inflation Forecast
The U.K. central bank last month forecast that inflation will slow to 0.3 percent in 2011, below the 2 percent target.
Lower energy costs are still eroding inflation pressures. Scottish Power Ltd., the British unit of Iberdrola SA, said on Feb. 27 it will cut U.K. electricity and natural-gas prices on March 31 as wholesale costs decline. Centrica, Britain's largest supplier, lowered gas prices by 10 percent last month.
The Bank of England has to do whatever is necessary to get Britain away from disinflation, policy maker David Blanchflower said yesterday.
Retail-price inflation, a measure of the cost of living used in pay bargaining, slowed to 0 percent, the lowest level since March 1960, the statistics office said.
U.K. wage negotiators clinched the smallest annual raises in six years during the three months through February as the recession deepened, a survey by Industrial Relations Services showed last week.
Meanwhile, the economy is still shrinking. Manufacturers' forecasts for output matched the gloomiest since records began in 1975 as the recessions in the U.K. and overseas wiped out demand for their goods, the Confederation of British Industry said on March 19.
A survey of independent economists compiled by the Treasury last month shows gross domestic product will contract by 2.8 percent this year, almost three times greater than Darling forecast in November. |
