Forex News – U.K. Inflation picks up slightly in August

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U.K. CPI data were released today showing inflation rose in line with expectations at 4.5 percent in August as consumer prices rose 0.6 percent. This was marginally higher than July’s inflation rate of 4.4. percent.

The U.K. Office for National Statistics said inflation was driven higher by record annual increases in clothing, footwear and furniture and the biggest rise in household bills in 2 years.

A breakdown of the data show that clothing and footwear, furniture, and restaurants and hotels components rose at their fastest annual rates since records began in 1997. Meanwhile, a 5.1 percent annual rise in the housing, water, electricity and gas component helped drive up inflation. This was the biggest rise since July 2009 and reflected price hikes of almost 20 percent by some utility companies which came into effect in August.

The Bank of England forecasts inflation to reach as high as 5 percent by the end of the year, which is more than double its 2 percent target, due to rising utility prices. However it expects inflation to ease over the next couple of years to below target.

Sterling was little changed after the news, only moving slightly higher, as the data was as expected and there were no surprises. Today’s CPI data is unlikely to change market expectations that the Bank will opt later this year to inject more stimulus into the economy to boost growth.

Meanwhile a separate report on the UK trade balance showed the goods trade deficit unexpectedly widened to 8.922 billion pounds in July, against analyst expectations for a narrowing to 8.50 billion pounds.