Britain hit hard by inflation; expected to last till 2018

Inflation in Britain rose in September to the highest level in nearly two years, with a leap that puts the Bank of England in a dilemma on its next moves. Consumer prices last month in the UK rose by 1% after + 0.6% in August and exceeding expectations that pointed to + 0.9%. This is the highest level of inflation since November 2014. According to the National Bureau of Statistics the major areas that were affected by the inflation were women’s clothing (which have contributed to the data to up 0.17 points percentages), restaurants and bars (+0.07. It would be too early, according to the National Bureau of Statistics, to evaluate the impact of the weakening of the pound.

The British currency fell to its lowest since 168 years compared to other major currencies according to recent calculations by the Bank of England. Post referendum of June 23, which has decreed the release of the UK by the EU, the pound has lost an average of 16%. However, according to the head of the ONS inflation division, Mike Prestwood, “there is still no clear evidence that the decline of the pound is driving up prices for everyday consumer goods.” Adding to this, the supermarket chain Tesco has resolved it’s pricing issues with the Dutch giant Unilever, intending to increase selling prices to Britain, including that of one of the most popular products, Marmite, because of decline of the pound.

Samuel Tombs, an analyst at Pantheon, notes that “the impact of the depreciation of the pound in product prices is still felt not because of the usual delay in the decline of a currency is translated on the label prices.” Furthermore, the major retailers – according to economists – they are probably ‘protected’ against currency fluctuation. In any case, the jump in inflation, “gives an alarm to the markets,” because Britain is heading for a “prolonged period of high inflation due to higher energy prices and prices of all ‘ import. ” The analyst expects that inflation will reach 3.5% within a year.

Paul Hollingsworth, of Capital Economics, quoted by the ‘Financial Times’, expects inflation above the BoE target of 2% in the spring of next year, with an increase of up to 3.2% in 2018. This trend raises questions about initiatives of the Bank of England, in November, after a sharp expansionist impulse imprinted in August. Governor Mark Carney said that the Bank can “tolerate a slight overshoot of the inflation target”, but what emerges is an increase of much higher prices that do not militate in favor of another rate cut. Carney’s words may, however, be interpreted as an indication that the BoE will not mind too much on inflation in recent months, considering temporary and will proceed to the rate cut to give oxygen to the economy struggling with the uncertainties of negotiated the Brexit.