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U.K. Inflation Rate Unexpectedly Rises Above BOE Target

David Goodman
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U.K. Inflation Rate Unexpectedly Rises Above BOE Target

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U.K. inflation unexpectedly accelerated last month, boosted by the price of computer games and hotel accommodation.

The pickup to 2.1% left consumer-price inflation above the Bank of England’s 2% target, figures from the Office for National Statistics show. Economists expected the rate to slow to 1.9% from 2% in June.

The retail prices index rose 2.8% from a year earlier, as forecast. The result is important for rail commuters as increases in regulated fares, which cover around 40% of all fares, are capped based on the July reading. Any rises will come into effect in January.

The figures are unlikely to tilt the debate at the Bank of England, where policy makers are expected to keep interest rates on hold until Brexit is resolved.

While wage growth is picking up and a weakening pound threatens to push up import prices, economists expect the BOE to cut rates if Britain crashes out of the European Union on Oct. 31 without a deal. Core CPI inflation was 1.9% in July.

Upward pressure last month came from computer games and consoles, as prices recovered strongly following sales in June. Restaurant and hotel prices rose more than a year earlier, while clothing and footwear prices fell less than they did in July 2018.

There was also pressure from banking services, after prices fell a year ago following the removal of initial charges for investment in some unit trusts.

Downward influences came from air, rail and sea transport fares, which rose at only a third of the pace in July last year. Auto and domestic fuel prices also weighed on inflation.

Signs that the weak pound is start to feed through came in separate figures showing producer input prices jumped 0.9% in July amid higher fuel costs, leaving the annual increase at 1.3%. Output prices rose 1.8% from a year earlier.

House prices in England and Wales rose an annual 0.9% in June, the same rate as in May. Together, they mark the weakest growth rates since 2012 as Brexit takes it toll on the property market. The worst-performing region was London, where values fell 2.7%.

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