Dec 13, 2016
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Clothing drives UK inflation to highest in over two years

Dec 13, 2016

British inflation hit its highest rate in more than two years last month, pushed up by more expensive clothing and the impact of June's Brexit vote on the prices consumers paid for technology goods.

Consumer prices were 1.2 percent higher than a year earlier in November, up from 0.9 percent in October and the biggest increase since October 2014, the Office for National Statistics said on Tuesday. Economists polled by Reuters had expected a 1.1 percent annual rise.

More expensive clothing pushed UK inflation up in November

In a separate release, the ONS said prices paid by British factories for materials and energy fell more than 1 percent on the month but were up by nearly 13 percent compared with November 2015 - the biggest annual increase since October 2011.

The Bank of England forecast last month that inflation would surge to about 2.8 percent by mid-2018, as sterling's plunge after Britain's vote to leave the EU pushes up the cost of imports and squeezes living standards and household spending.

Sterling is currently down about 15 percent against the U.S. dollar and 8 percent against the euro, making suppliers and retailers battle for profits as imported goods become more expensive.

There was some respite for sterling in November, which eased the pressure on factories paying for materials and energy during the month.

Annual rates of producer price inflation rose at the fastest pace in more than four years, however, underscoring how British inflation more broadly looks set to rise sharply next year.

"We expect inflation could hit 3 percent next year against a backdrop of rising unemployment and weaker wage growth," said Richard Lim, chief executive of consultancy Retail Economics.

British inflation has been below the Bank of England's 2 percent target for nearly three years and last year it was zero, the lowest level since comparable records began in 1950.

Bank of England policymakers look set to keep interest rates on hold this Thursday after dropping their signals of another cut and adopting a neutral stance last month.

Clothing prices provided the biggest boost to the annual inflation rate in November, in part because retailers offered fewer discounts.

Prices for recreation and culture rose by 0.5 percent from October to November, fuelled by higher costs for technology goods. Manufacturers such as Apple have increased prices in Britain to reflect the fall in the value of sterling since the Brexit vote.

And the ONS said consumers had to pay 7.4 percent more for fuel compared with a year ago - a trend that looks likely to continue.

On Monday oil prices rose by as much as 6.5 percent to an 18-month high after OPEC members and some of their rivals reached a first deal since 2001 to jointly reduce output to try to tackle global oversupply and boost prices.

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