© Reuters. FILE PHOTO: Shoppers cross the street on Oxford Street in London, Britain on Aug. 14, 2016. REUTERS / Peter Nicholls
By Andy Bruce and William Schomberg
LONDON (Reuters) – UK inflation more than doubled in April. That is the start of a likely price spike this year as rich economies recover from pandemic lockdowns. However, the Bank of England is hoping it will prove temporary.
After US inflation hit its highest level since 2008 last week and prompted Fed officials to say they were in no rush to hike interest rates, the UK consumer price index rose 1.5% in April.
This was a significant jump from the 0.7% rise in March and marked the highest CPI since March 2020, driven by higher electricity and fuel costs as global oil prices rose from their 2020 pandemic lows.
However, April inflation was just a touch above the 1.4% surge recorded in a Reuters poll of economists and was still below the Bank of England’s 2% target.
For now, this should give the central bank confidence that it won’t have to pull the plug prematurely on the trillion-dollar bond purchase program it launched to support the UK economy during the crisis.
Inflation is likely to decline next year as comparisons with the coronavirus slump wear off, most analysts say.
“If we are right to believe that the crisis will not leave a big scar on the economy, the surge in inflation caused by the reopening of the economy should prove temporary,” said Ruth Gregory, an economist at consultancy Capital Economics.
Kallum Pickering, an economist at Berenberg Bank, warned more cautiously.
“We do not believe that higher inflation will be entirely temporary, as many in the markets are claiming and as global central bankers seem to be suggesting,” he said. “The recovery marks a turning point for inflation in advanced economies after more than a decade of disinflation.”
The pound and interest rate futures markets remained largely untouched according to the data. [GBP/]
BOE NOTES “EXTREMELY CAREFUL”
Higher electricity and gas bills – which rose more than 9% in April – and rising clothing and footwear prices helped drive UK inflation higher in April, along with gasoline costs.
Core inflation, which excludes energy prices and other volatile items, rose less than headline inflation, rising from 1.1% in March to 1.3% in the twelve months to April, according to the Bureau of National Statistics.
The BoE expects inflation to hit 2.5% by the end of 2021, in large part due to the surge in oil prices and the expiry of the emergency COVID cuts to hospitality sales tax in September.
It is assumed that inflation will fall back to 2% in 2022 and 2023.
However, BoE chief economist Andy Haldane said earlier this month that shortly after its individual vote to wind down the BoE’s bond-buying program, the BoE “must start turning off the tap to avoid the risk of a future inflation spate”.
Governor Andrew Bailey said Tuesday that there is little evidence so far that higher costs to producers have had a major impact on consumer prices in the UK, but the central bank has been “watching this very closely and we will take action if we deem it appropriate” . no question about it. “
Wednesday’s data showed that the prices paid by manufacturers for their inputs rose 9.9%, the most since February 2017, while the prices they charged rose 3.9%, the largest increase in two and a half years .
Separate ONS data showed rampant house price inflation: an annual increase of 10.2% in March marked the strongest growth in house prices since August 2007.