Tags: UK | Inflation | Rate | Above | Target

UK Inflation Rate Stays Above Official Target

Tuesday, 14 Sep 2010 07:35 AM

Higher prices for clothes and plane tickets helped keep Britain's inflation rate at 3.1 percent in August, the ninth straight month it has stayed above the official target of 2 percent, official statisticians said Tuesday.

While prices for cars and fuel fell, food, clothing, and air travel showed the highest increases in the consumer price index, the Office of National Statistics said. The rate is at its lowest point since April, when it peaked at 3.7 percent.

A separate measure, the retail prices index — which is widely used in wage negotiations — fell to 4.7 percent in August from 4.8 percent the previous month.

Consumer price inflation has remained above 3 percent all year, prompting questions about how long the Monetary Policy Committee of the Bank of England can hold its interest rate at a record low of 0.5 percent.

Analysts had been anticipating a fall in the inflation rate, and still believe it can drop as 2010 nears its end. But rising food prices and a hike in Britain's value added tax, or sales tax, from its current level of 17.5 percent to 20 percent could keep the rate high.

Howard Archer, European economist at IHS Global Insight, said the figures, while disappointing for the Bank of England, would be unlikely to alter the ratesetter's view that inflation will fall below two percent by 2012.

"It still seems probable that the Monetary Policy Committee will hold off from raising interest rates for some considerable time to come," he said.

Last month, the Bank of England's governor, Mervyn King, was forced to write an open letter to treasury chief George Osborne, explaining why the rate remained so far above the 2 percent mark. King cited a January 2010 rise in sales tax, as well as the continued effects of higher import prices following the weakening of the British pound.

Tuesday's report said the cost of air travel rose by 16.1 percent, a record for the period. Prices for clothing — particularly women's outwear — and footwear saw the largest rise for the period since 2001, rising by 2.8 percent overall.

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Higher prices for clothes and plane tickets helped keep Britain's inflation rate at 3.1 percent in August, the ninth straight month it has stayed above the official target of 2 percent, official statisticians said Tuesday. While prices for cars and fuel fell, food,...
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Tuesday, 14 Sep 2010 07:35 AM
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