U.K. Inflation Leaps To Four-Year High Ahead of Bank of England Rate Decision

The pound sped to a near one-year against the dollar after faster-than-expected inflation data triggered new bets of rate hikes from the Bank of England.

Author:: Martin Baccardax
Publish date:: Sep 12, 2017 5:11 AM EDT

U.K. inflation rose more than forecast last month, the country's statistics office said Tuesday, just two days ahead of the Bank of England's next policy meeting that comes amid warnings that businesses and consumers have become too complacent over record-low interest rates.

Consumer prices accelerated at a 2.9% clip in August, the Office for National Statistics said, topping the 2.8% consensus forecast and matching May's four-year high. So-called core inflation, which strips out volatile prices for food and energy, rose to 2.7%, the ONS said, the highest since 2011.

"All else being equal, the depreciation of sterling seen in 2016 and particularly following the outcome of the EU referendum would increase the prices producers pay for imported goods," the ONS said. "Whilst depreciation is likely to increase the cost of imports, other factors determine whether these are passed on to consumers."

The pound was marked 0.9% higher against the U.S. dollar shortly after the release and changing hands at 1.3280, the highest since September 13 of last year.

The ONS also said that it granted "exceptional pre-release access" to the August data to the BoE last week, with the Bank then stepping up its warnings to both consumers and business that the current low-rate environment is not sustainable given the ongoing rise in prices thanks in large part the pound's 12% decline on foreign exchange markets after last year's Brexit vote.

The BoE noted last month that, "if the economy follows a path broadly consistent with the August central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than the path implied by the yield curve underlying the August projections."

The coded warning was followed by a series of mixed data points from Europe's third-largest economy, including better-than-expected readings from the country's manufacturing sector last week and solid, although not spectacular, consumer spending figures.

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