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U.K. Inflation Remains Unchanged In December

U.K. Inflation Remains Unchanged In December
1/15/2013 7:25 AM ET

U.K. inflation remained stable at above 2 percent target in December adding to the central bank's concerns about a fragile economy.

Consumer price inflation was 2.7 percent for the third month in a row, the Office for National Statistics said Tuesday. The rate also came in line with economists' expectations.

Monthly inflation for December was 0.5 percent, which was faster than the 0.2 percent rise in November, and matched economists' expectations.

Housing and utility costs kept inflation high in December, adding 0.26 percentage points. On the other hand, the largest downward pressure came from transport costs.

Core inflation that excludes energy, food, alcoholic beverages and tobacco, slowed to 2.4 percent in December from 2.6 percent a month ago.

IHS Global Insight Chief U.K. Economist Howard Archer said increased energy tariffs and higher food prices could push inflation up to 3 percent early in 2013 and keep it there for a while. Depending on food and oil prices, inflation will fall back later this year, he said.

As inflation is likely to stay close to the December rate in the near-term, it will push real pay down further this year, observed Vicky Redwood, an economist at Capital Economics.

The Bank of England is set to publish its latest inflation and growth forecasts on February 13. Policymakers maintained quantitative easing at GBP 375 billion last week and the key interest rate at a record low 0.50 percent.

Retail prices gained 3.1 percent from a year ago, while it was forecast to rise 3 percent as seen in November. Likewise, the retail price index excluding mortgage interest payments, climbed 3 percent after rising 2.9 percent in November.

The ONS last week said the current calculation of the Retail Price Index should be continued without major changes so that it would not affect payments on inflation-linked bonds.

A separate report from the ONS showed that factory gate inflation edged up to 2.2 percent in December from 2.1 percent in the previous month. It was forecast to accelerate to 2.4 percent.

Due to a fall in petroleum product prices, the output price index for home sales of manufactured products fell 0.1 percent, which was less than a fall of 0.3 percent in November.

At the same time, input prices gained 0.3 percent on year, reversing last month's 0.1 percent drop. Meanwhile, the index slipped 0.2 percent from a month ago.

by RTT Staff Writer

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