U.K. Inflation Rate Increases

The U.K. inflation rate rose more than economists forecast in October, climbing for the first time in eight months as fuel costs and air fares climbed.

Consumer prices gained 1.5 percent from a year earlier, compared with 1.1 percent the previous month, the Office for National Statistics said. On the month, prices rose 0.2 percent.

Bank of England policy maker Andrew Sentance said in an interview yesterday that there may be volatility” in inflation, which risks exceeding the 2 percent target after two years. He said it is still too soon to consider tightening policy after the central bank expanded its bond-purchase plan to 200 billion pounds ($336 billion) to combat deflation.

Policy makers decided this month to increase their program to buy bonds with newly created money by 25 billion pounds as they left they key interest rate at a record low of 0.5 percent. Bank of England Governor Mervyn King said last week that he has an open mind” on whether to expand it further.

The inflation rate increased as prices of fuels and lubricants fell less this year than they did in the same month a year earlier, the statistics office said. The cost of second- hand cars increased by a record on the month because of a shortage of stock, while air fares climbed this year compared with a drop in 2008.

The Bank of England published new quarterly growth and inflation forecasts Nov. 11 showing the inflation rate won’t return to the 2 percent target until 2012, though will rise above the goal around the turn of the year as a temporary cut in value-added tax expires.

U.K. Inflation Rate Increases

TradingEconomics.com, Bloomberg
11/17/2009 9:21:04 AM