Inflation climbs in the United Kingdom!

United Kingdom - Sep 21 2018

UK inflation unexpectedly accelerated in August to a six-month high, which is bad news for the British, whose purchasing power was just beginning to improve. 

The rise in prices stood at 2.7% year-over-year last month, augmented by increasing prices for cultural goods, transport and clothing, the Office of National Statistics (ONS) announced on Wednesday. This figure, which comes after a price increase of 2.5% in July, is a surprise for economists who had predicted, on the contrary, a slowdown to 2.4% according to the Bloomberg consensus. Inflation confirms that it is moving forward again, after recovering in July for the first time since November 2017. At 2.7%, it returns to its level of February, which is bad news for the purchasing power of households whose wages are progressing a little more slowly, by 2.6% including premiums at the end of July. 

The rise in prices had briefly exceeded 3% at the end of 2017, then took an upswing by the fall in sterling following Brexit in the referendum of June 23, 2016. This figure released on Wednesday also confirms the BoE's decision to increase its interest rate in August, for the second time only since the 2008 crisis that is bad news for credit and thus consumption. The BoE intends to continue its monetary tightening to bring inflation back to its target of 2% but has chosen in the short term to be cautious while waiting in the coming weeks for the outcome of the difficult negotiations on Brexit. If inflation confirms its new surge, the consequences could therefore be negative for British growth, which relies heavily on consumption and the services sector.

Julien Moussavi, Head of Economic Research - Sources: Beyond Ratings, ONS

 

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