LONDON • UK inflation is on the rise again, accelerating more than forecast in August after the biggest surge in clothes prices in almost three decades.
The jump to 2.9% from 2.6% in July puts the spotlight squarely back on one of the most prominent economic repercussions of the Brexit vote in 2016. The pound has fallen 11% against the dollar since the referendum, boosting import costs and feeding through to prices for everyday household items. The annual inflation rate has never been higher since 2012 and helped push Bloomberg’s Brexit barometer to the lowest since June.
The numbers, as well as intensifying a squeeze on households, may put fresh pressure on Bank of England (BoE) policymakers, who are grappling with price growth above their 2% target. While just two of the nine-member Monetary Policy Committee (MPC) voted to increase interest rates from a record-low 0.25% last month, some economists say a third — Andy Haldane — could join them at this week’s meeting.
A 6-3 vote “could prompt a reappraisal of the potential path of interest rates,” said James Knightley, chief international economist at ING in London. “But we feel that the economic uncertainty brought about by Brexit will lead the committee to hold fire until there is much greater clarity on the UK’s post Brexit environment.”
The data yesterday from the Office for National Statistics also showed that core inflation accelerated more than economists expected last month, reaching the most since 2011.
The inflation pickup in August was led by clothing and footwear, which surged 4.6% compared to a year earlier. The statistics office said weaker sterling may be partly to blame, with the currency down 14% on a trade-weighted basis since the UK voted to leave the European Union.
Separate data yesterday showed that companies’ input costs rose 1.6% in August, the most this year, while output prices rose 0.4%.
The pickup in prices this year is hurting consumers and acting as a drag on the economy.
The BoE announces its next policy decision tomorrow. A majority of MPC members will probably vote for no change to the benchmark rate, with inflation concerns tempered by the fact the economy expanded just 0.3% in the second quarter, leaving growth the slowest among Group of Seven nations. — Bloomberg