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UK inflation posts record jump to hit 9-year peak in August By Reuters


© Reuters. FILE PHOTO. People pass a sign at a shop in Manchester as a result of the COVID-19 outbreak. This was December 15, 2020. REUTERS/Phil Noble//File Photo


By Andy Bruce and David Milliken

LONDON (Reuters) -Britain’s inflation rate hit its highest in almost a decade last month after a record jump that was largely fuelled by a rebound in restaurant prices which were artificially pushed down a year ago by government subsidies.

According to the Office for National Statistics, August’s consumer prices rose 3.2% year-on–year. This is the highest annual rate of inflation since March 2012. It was also higher than July’s 2.0%.

According to statistics, the “Eat out to Help Out” government scheme that offered discounts on food to aid a pandemic-affected sector would disappear from the next month’s data.

The Bank of England still expects that inflation will reach 4% later in the year due to rising energy prices, pandemic bottlenecks and other factors. But it believes this trend will diminish over the next 2022.

August’s increase of 1.2 percentage points in annual inflation rate was the largest since 1997 when detailed records were started. None of the 37 economists polled at Reuters expected such a high reading. Instead, the median forecast pointed to 2.9% consumer price inflation.

The heavy discounts under the Eat Out to Help Out Scheme this summer were a major factor in the rise. Hugh Gimber of J.P. Morgan Asset Management said there were signs that inflationary pressures have become more widespread and broad-based in many areas of the economy.

According to the ONS, there is also evidence from anecdotal reports that supply chain shortages and increasing shipping costs contributed to increased food prices. Last month saw their largest monthly increase in August 2008 since 2008.

Inflation has been rising in several countries, including Britain. This is due to higher oil prices and global shipping issues.

Although the euro zone’s inflation was at its highest level in 10 years, Tuesday’s data showed that the U.S. consumer prices grew at a slower pace than they had for six months. It suggests that there has been a peak.

As investors increased their expectation for BoE rate hikes next year, British government bond yields rose following Wednesday’s data.

According to Reuters, economists believe that the BoE will increase borrowing costs before 2022. This is earlier than was previously believed. Markets expect a second rise by December and a May increase. [ECILT/GB]


In August 2020 the government offered diners a 50% discount of up to 10 pounds ($14) per head on meals to kick-start the economy. The absence of such discounts resulted in restaurant prices exceeding half the increase of headline inflation by 1.2 percentage points last month.

Economists stated that August’s unusually low reading was not likely to worry BoE policymakers, who were considering ending the stimulus program at the peak of the COVID-19 epidemic.

Jack Leslie (senior economist, Resolution Foundation think tank) stated that “these” effects are temporary and policymakers have little to do about the cost of living crisis.

The central bank has a more difficult task when assessing whether labor shortages could lead to longer-term pressures. Half of BoE policymakers deemed that the basic conditions for raising rates had been satisfied last month, but none believed there was sufficient evidence to support tightening policy.

The Wednesday British producer price data revealed that prices are still rising. Prices charged by manufacturers for raw materials and finished goods rose at an accelerated rate. Oil prices have risen 50% since last year.

ONS data also showed that British house prices rose 8.0% in July compared to a year ago. This is a smaller rise than the 13.1% increase in June. It was the last month buyers could take advantage of the temporary tax relief on purchases of property.

($1 = 0.7235 pounds)