U.K. Inflation Accelerates for First Time in Six Months

U.K. inflation unexpectedly accelerated in March for the first time in six months, driven by prices for food, clothing and recreation and culture.

Consumer prices rose 3.5 percent from a year earlier, up from 3.4 percent in February, the Office for National Statistics said today in London. The reading was higher than the 3.4 percent median forecast of 37 economists in a Bloomberg survey.
Divisions have emerged at the Bank of England as a jump in energy prices threatens to stoke an inflation rate in its third year above target, with policy makers Martin Weale and Spencer Dale warning that price gains may slow less quickly than expected. The Monetary Policy Committee maintained its quantitative-easing program at 325 billion pounds ($517 billion) this month. It publishes minutes of the decision tomorrow.

“There seems to be a little bit of payback from the previous couple of months’ brisker growth,” said Philip Rush, an economist at Nomura International Plc in London. “I don’t think the MPC will be particularly happy to see inflation moving further north of their target, but at the same time, I don’t think they’ll be overly concerned about that. I don’t think the surprise is enough to really influence the QE debate.”

The pound extended gains against the dollar after the report and was trading at $1.5965 as of 10:00 a.m. in London, up 0.4 percent on the day.

From the previous month, consumer prices rose 0.3 percent in March, the same as the median forecast in a Bloomberg survey of 32 economists. The increase was driven by clothing and footwear prices and road fuel costs. Domestic gas and electricity prices fell as suppliers reduced tariffs.
Core Inflation

Core annual inflation, which excludes alcohol, food, tobacco and energy prices, accelerated to 2.5 percent from 2.4 percent. Retail-price inflation, a measure used in wage negotiations, slowed to 3.6 percent from 3.7 percent. The retail-price index excluding mortgage-interest payments gained 3.7 percent, down from a 3.8 percent increase the previous month.

In February, the Bank of England forecast inflation will slow to its 2 percent goal by year-end as Europe’s debt crisis and a public-spending squeeze at home constrain growth.

While policy makers Adam Posen and David Miles kept up their push for more stimulus last month, Dale and Weale have warned of the threat from oil prices, which have gained almost 20 percent since early October. Prices for gas and diesel fuel both rose to record levels in March, the statistics office said.
‘Obvious Worry’

Dale, the central bank’s chief economist, said on March 20 that an “obvious worry” is tension in the Middle East that “could put further upward pressure on oil prices.” Weale has said there may be “more persistence” to inflation.

Inflation is also proving a concern for euro-area policy makers. The European Central Bank held its benchmark interest rate at 1 percent on April 4 and President Mario Draghi said that there are near-term “upside” price risks.

Euro-area consumer prices rose an annual 2.7 percent in March, exceeding an initial estimate of 2.6 percent, according to data from the European Union’s statistics office today.

The U.K. central bank’s 50 billion-pound round of bond purchases announced on Feb. 9 will be completed in early May, when the bank will release the results of its quarterly forecasting round.

Debenhams Plc (DEB), the U.K.’s second-largest department-store company, on March 20 reported stronger sales growth as customers sought bargains in the post-holiday clearance and responded to a new marketing campaign. Sales at stores open at least a year rose 2.4 percent in the eight weeks ended March 3, the London- based retailer said in a statement.