Consumer prices climbed 3 percent from a year earlier, compared with 2.5 percent in March, the Office for National Statistics said today in London. The result was the highest in 13 months and exceeded the 2.6 percent median prediction of 37 economists in a Bloomberg News survey. Prices rose 0.8 percent on the month, the most in almost seven years.
The pound rose and gilts fell after the report showed inflation, stoked by food and energy costs, is now within 0.1 percentage point of the government's upper limit. Policy makers have cut the benchmark interest rate three times since December to 5 percent to avert a recession as house prices fall, with a report today showing the most widespread declines since at least 1978.
The pound rose as much as 0.3 percent against the dollar after the report and traded at $1.9454 as of 10:51 a.m. in London. Yields on two-year government bonds jumped 10 basis points to 4.431 percent.
Governor Mervyn King will signal whether the central bank has scope for further interest-rate cuts when he presents the bank's quarterly inflation forecasts tomorrow. Policy makers had the details of today's report at their May 8 meeting, when they kept the key rate unchanged.
Inflation has exceeded the central bank's 2 percent target for seven months. The 0.5 percentage-point increase in the rate from March was the biggest jump since July 2002.
The price of oil, which has more than doubled in the past year, rose to a record $126.40 per barrel yesterday. Wheat prices have increased 75 percent in the same period.
Faster inflation may encourage workers to seek bigger pay increases, risking a spiral of wages and prices. Retail-price inflation, a measure of the cost of living used in salary negotiations rose to 4.2 percent, the most since November.
Excluding mortgage-interest payments, the rate was 4 percent, the most since September 1992. The government used this measure as its official inflation gauge until 2003.
Turmoil in credit markets prompted the International Monetary Fund to forecast U.K. growth of 1.6 percent in 2008, the least since the end of the last recession 16 years ago.
The U.K. housing market had the most widespread declines in April since at least 1978, the Royal Institution of Charted Surveyors said today. Banks raised the cost of borrowing for homebuyers with a 5 percent deposit to the highest in more than eight years in April, declining to pass on the central bank's rate cuts.