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UK Inflation Unexpectedly Accelerates In February

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UK consumer price inflation unexpectedly accelerated in February for the first time in six months, led by higher prices for food and alcohol, while house price inflation was the weakest in nearly six years at the start of the year.

The consumer price index rose 1.9 percent year-on-year following a 1.8 percent increase in January, preliminary data from the Office for National Statistics showed on Wednesday. Economists had expected the inflation rate to remain unchanged.

A modest rise in food and alcohol and tobacco prices was behind the latest acceleration in inflation, while weaker price growth in clothing and footwear offset further rise in inflation, ONS said.

Inflation peaked at 3.1 percent in November 2017.

As a cap on household energy prices is lifted, economists expect headline inflation to accelerate further to above 2 percent in the coming months.

Core inflation slowed to 1.80 percent from 1.90 percent. Economists had expected the rate to remain unchanged.

The Bank of England, which is set to announce its latest policy decision on Thursday, target inflation at 2 percent. The bank is expected to maintain status quo this month.

With wage growth at 3.4 percent, economists are not yet ruling out an interest rate hike from the central bank this year despite the Brexit uncertainty.

"A lot will depend on the length of a possible article 50 extension, but if the EU offers the UK a longer period...perhaps until the end of the year..., this could open a brief window for the Bank of England to hike over the summer," ING economist James Smith said.

While that relies heavily on the strength of the economy recovery, Smith said, "It's equally possible that an Article 50 extension could lead to a prolonged pause from the BoE, particularly given that the 'no deal' risk will not be taken off the table permanently."

The ONS also reported that UK house price inflation slowed to 1.7 percent in January, thus marking the weakest level since June 2013.

London property prices continued to fall, logging their steepest drop since the end of the financial crisis, with Wales, the East Midlands and the West Midlands driving the overall growth, the ONS said.

The CPI including owner occupiers' housing costs rose 1.8 percent year-on-year in February, same as in January. That was in line with economists' expectations.

In February, higher prices for food, alcohol and tobacco, and price increases for recreational and cultural goods made the largest upward contributions to inflation.

The biggest downward contribution came from clothing and footwear, with prices rising between January and February 2019 but by less than between the same two months a year ago, the ONS said.

Input price inflation accelerated to 3.7 percent from 2.6 percent in January. Economists had projected inflation of 4.10 percent.

Output price inflation edged up to 2.2 percent in February from 2.1 percent in January. That was in line with economists' expectations.

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