LONDON: British inflation surged further above the Bank of England’s target in June to strike 2.5 per cent, its highest since August 2018, increasing speculation that the BoE will have to consider sooner whether to ease off its huge stimulus programme.
Prices for food, fuel, second-hand cars, clothing and footwear rose as the economy bounced back from its lockdown slump, the Office for National Statistics said.
The jump was sharper than forecast by economists in a Reuters poll, who had mostly seen CPI edging up to 2.2 per cent from May’s 2.1 per cent, and comes a day after US inflation hit its highest in 13 years at 5.4 per cent.
Sterling strengthened against the dollar and euro . Two-year British government bond yields, which are sensitive to short-term inflation and interest rates, touched a three-week high.
“The Bank (of England) will likely feel that the time is rapidly approaching to dial down the level of support they are providing to the economy,” said Hugh Gimber, global market strategist at J.P. Morgan Asset Management.
Most central bankers think the global surge in inflation will be temporary, and reflects supply-chain bottlenecks as Western economies emerge from the coronavirus pandemic.
BoE Deputy Governor Jon Cunliffe said the central bank would take a closer look at how persistent inflation was likely to be when it publishes forecasts next month, but that much of the increase was linked to the reopening of the economy.
“You have to see today’s print in the context of what’s happening in the UK and similar things are happening in other parts of the world,” he told CNBC.
The BoE revised up its forecast for inflation last month to predict a peak of over 3 per cent. Its outgoing chief economist, Andy Haldane, sees it nearer 4 per cent by the end of the year.
The BoE expects inflation to fall back towards its 2 per cent target over the next couple of years, as subdued pre-pandemic price trends and weak pay growth resume.
But Wednesday’s data revive questions about the BoE’s decision last November to commit to 100 billion pounds ($138 billion) of new bond purchases throughout 2021. Haldane voted in May and June to stop the programme early.
Financial markets are now pricing in a first rise in BoE interest rates to 0.25 per cent from their current 0.1 per cent by August 2022. — Reuters
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