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Inflation worry continues in August after GST implementation

13 September 2017

Markets are hopeful that the uptick in inflation will place more pressure on the Bank of England (BoE) to start tightening monetary policy, as the continual rise in prices erodes consumer spending power and weakens the UK's all important service sector.

According to figures from the Office for National Statistics (ONS), fashion costs rose at an annual rate of 4.6% in August.

As a result, core inflation jumped to 2.7 per cent, above consensus expectations of 2.5 per cent.

Inflation rose to 2.36 percent in July, after falling for three straight months.

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The higher-than-predicted figure could meanwhile put pressure on the Bank of England to raise its key interest rate from a record-low level sooner than expected, although it is not forecast to make any change at Thursday's regular policy meeting. Monthly inflation also matched flash figure.

Fuel inflation remained almost flat, witnessing 4.94 percent growth in August, as compared with 4.84 percent in July.

"The jump in CPI inflation in August largely was driven by retailers pushing through big price rises in response to sterling's depreciation", said Samuel Tombs, chief United Kingdom economist at Pantheon Macroeconomics.

· Inflation now looks likely to move just above 3% in the near-term, but there remains a good chance that this will be the peak barring sustained renewed sterling weakness.

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Motor fuels were also pushing the overall cost of living higher, with fuels and lubricants rising 1.6 per cent month-on-month in August following a 1.3 per cent fall previous year.

In the last month, July, the retail inflation was chiefly driven by hardening of prices in sugar and confectionery items, pan, tobacco, and intoxicants.

Clothing and footwear price inflation has recorded a rise of 4.58% in prices. The CPIH rate of inflation hit 2.7%, up from 2.6% a month earlier.

At 16:00 GMT the FxWirePro's Hourly Strength Index of British Pound was highly bullish at 158.196, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 54.3853.

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Another report from ONS showed that output price inflation accelerated for the first time in six months in August. This meant that real incomes fell by 0.5% in June.

Inflation worry continues in August after GST implementation