UK Inflation hits a 5 year high

UK inflation rises to its highest level in 5 and a half years last month, according to official data released at 9:30am this morning that could make the Bank of England more likely to raise interest rates next month.

Consumer prices last month were 3.0 percent higher than a year ago, the Office for National Statistics said, matching economists’ average expectation and marking the fastest rise since April 2012.

Rising inflation – driven largely by the pound’s fall since last year’s Brexit vote – has squeezed household incomes this year, causing broader economic growth to slow, as wages have failed to keep pace with the rising cost of living.

Nonetheless, last month the BoE said it expected to raise interest rates in the coming months, so long as the economy and price pressures continued to strengthen.

Most economists think the BoE will move at its next meeting in November – but most also said it would be a mistake to act now.

Last month the BoE said it expected inflation to exceed 3 percent in October, higher than it had forecast just a month before, when it predicted it would take more than three years for inflation to return to its 2 percent target.

Although much of the effect of the pound’s decline has already been felt by consumers, some retailers are only now starting to pass on price rises.

The pound has fallen around 12 percent since the referendum against a trade-weighted basket of major currencies such as the U.S. dollar and the euro.

Last week BoE Governor Mark Carney said the central bank expected to raise interest rates in the coming months but he declined to be drawn on whether it would be as soon as next month, or if a series of rises is planned.

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