Record food, clothing costs push up British inflation

14th December 2010, Comments 0 comments

British annual inflation reached a higher-than-expected 3.3 percent in November, as soaring commodity prices resulted in record food and clothing prices, official data showed Tuesday.

The figure was up from 3.2 percent in October, said the Office for National Statistics (ONS). Analysts had forecast no change, according to Dow Jones Newswires.

The annual reading remained far above the Bank of England's target rate of 2.0 percent and could see the BoE deciding to raise interest rates from record-low levels sooner than expected, some economists warned.

"If inflation refuses to fall ... it may be forced to tighten monetary policy just as the biggest fiscal squeeze for decades is hitting the economy," said Jonathan Loynes, at the Capital Economics consultancy in London.

Britain faces massive cuts to public spending in 2011 as the coalition government seeks to slash a record state deficit.

Meanwhile on January 4, Britain's VAT sales tax on goods and services rises to 20 percent from 17.5 percent currently.

"Looking forward, January's VAT hike as well as ongoing rises in food and commodity prices are likely to keep inflation well above the BoE's medium-term target of two percent in the coming months," said ABN AMRO economist Joost Beaumont.

The ONS said Consumer Price Index (CPI) inflation climbed 0.4 percent in November from October. Analysts had predicted a monthly rise of 0.3 percent.

"November's consumer prices figures will do little to ease current concerns over the continued stubbornness of UK inflation," Loynes added.

"The rise in the headline rate from 3.2 percent to 3.3 percent was largely driven by a jump in food price inflation, no doubt reflecting global commodity price rises."

The ONS said prices of food and non-alcoholic drinks rose by a record 1.6 percent for an October to November period. Clothing and footwear prices meanwhile rose by 2.0 percent -- also a record high for the month.

Cotton prices recently broke record highs and grain struck multi-year peaks owing to tight supplies amid strong demand.

Tuesday's inflation data comes less than a week after the Bank of England voted to keep its key interest rate at a record low 0.50 percent amid expectations that Britain's robust economic recovery will slow next year.

BoE policymakers also decided to maintain the size of the central bank's stimulus programme at 200 billion pounds (238 billion euros, 315 billion dollars). Both announcements had been widely expected.

© 2010 AFP

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