UK inflation tests the BoE as it hits its highest level since 2018 – .

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UK inflation tests the BoE as it hits its highest level since 2018 – .


  • June CPI rises to 2.5% from 2.1% in May
  • Reuters poll showed 2.2% increase
  • Fuel prices up 20% year on year
  • BoE’s Cunliffe Sees Supply Constraints Raise Prices
  • Sterling rallies, two-year yields hit three-week high

LONDON, July 14 (Reuters) – UK inflation topped the Bank of England’s June target again to 2.5%, its highest level since August 2018, fueling speculation the BoE will have to consider sooner if it has to ease its huge stimulus package.

Prices for food, fuel, used cars, clothing and footwear rose as the economy recovered from the foreclosure crisis, the Office for National Statistics said.

The jump was sharper than expected by economists in a Reuters poll, which mainly saw the CPI climb to 2.2% from 2.1% in May, and comes a day after US inflation hit its peak. highest level in 13 years at 5.4%. Read more

The pound sterling strengthened against the dollar and the euro. UK two-year government bond yields, sensitive to short-term inflation and interest rates, hit three-week highs.

“The Bank (of England) will probably think the time is fast approaching to reduce the level of support it provides to the economy,” said Hugh Gimber, global markets strategist at JP Morgan Asset Management.

Most central bankers believe the global spike in inflation will be temporary and reflects supply chain bottlenecks as Western economies emerge from the coronavirus pandemic.

BoE Deputy Governor Jon Cunliffe said the central bank would take a closer look at the likely persistence of inflation when it releases its forecast next month, but much of the increase was linked when the economy reopens.

“You have to see today’s print in the context of what’s going on in the UK and similar things happening in other parts of the world,” he told CNBC.

The BoE revised its inflation forecast upwards last month to forecast a peak of more than 3%. Its outgoing chief economist, Andy Haldane, sees it close to 4% by the end of the year. Read more

The BoE expects inflation to fall back to its 2% target over the next two years, as moderate pre-pandemic price trends and weak wage growth resume.

But Wednesday’s data rekindles questions about the BoE’s decision last November to commit to 100 billion pounds ($ 138 billion) of new bond purchases throughout 2021. Haldane voted in May and June to stop the program earlier.

Financial markets are now anticipating a first hike in BoE interest rates to 0.25% from their current 0.1% by August 2022.

PRESSURE AT WORK

The BoE fears that the phasing out of the government’s job subsidy program by the end of September could lead to higher unemployment, which would dampen inflation.

The acceleration in the CPI reflects weak demand last year when much of the economy was at a standstill.

Global oil prices have soared as the global economy recovers. Figures on Wednesday showed UK fuel prices were 20.3% higher than in June 2020, the biggest increase since 2010.

Used car prices rose 5.6%, but not as much as in the United States where they accounted for a third of the rise in inflation in June.

The rise in used car prices reflects the continued avoidance of public transport, delays in the production of new cars and consumers spending part of their foreclosure savings, the ONS said.

June’s inflation data was also the first since restaurants reopened to indoor diners and showed the biggest price increase since a similar reopening in July 2020.

Clothing and footwear prices rose the most since February 2018, up 2.5% from a year ago, when depressed by lockdown restrictions.

Food prices were 0.6% lower than a year ago, a smaller annual decline than before and were 0.2% higher on the month, adding to the annual inflation rate for June .

House prices in May were 10.0% higher than the previous year, corresponding to the increase in March, the largest since September 2007. read more

($ 1 = 0.7228 pounds)

Writing by David Milliken; Editing by William Schomberg and Catherine Evans

Our Standards: Thomson Reuters Trust Principles.

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