UK consumer prices were much stronger than expected today but that was not much of a surprise given the sharp rise in producer prices reported yesterday. This was the first time since June that the annualized pace of inflation growth has surpassed the Bank of England’s 2 percent target.
The gains were unsurprisingly led by oil, food and air travel. Even though there are troubles in other parts of the UK economy, the latest inflation readings should be concerning to the central bank and eliminates any prospect of a near term interest rate cut. Meanwhile house prices fell to the lowest level in 2 years last month adding to the evidence that the property market in the UK is cooling. Tomorrow we are expecting UK employment data and the Quarterly Inflation report. Although the labor market is expected to hold steady, we could see a nice rise in average earnings.