UK Inflation Miss Sparks BoE Hike Fears
UK inflation accelerated to 3.1% in August, surpassing the Bank of England's (BoE) target and highlighting a widening gap between actual price pressures and the central bank's assumptions just before its latest interest-rate decision.
The Consumer Prices Index (CPI) rose from 2.9% in July, matching economists' expectations, but the more important comparison for monetary policy is with the BoE's own July projection, which had put August inflation at 2.9%. The 0.2 percentage-point miss is small in isolation but takes on significance when combined with rising oil prices above $100 and already elevated inflation expectations.
Higher petrol and diesel prices have driven transport costs upwards after renewed Middle East fighting lifted crude prices, while electronics prices linked to semiconductor shortages could add another 0.2 percentage points to inflation. The BoE acknowledged in July that risks to its inflation forecast were tilted to the upside due to persistent energy costs.
Economists expect the Bank to hold on Thursday but rising inflation has increased expectations of a quarter-point increase later in the year, potentially as soon as November. Britain's labour market is cooling, with payroll employment falling again in August and private-sector wage growth slowing to 2.9%, reducing the risk of a wage-price spiral.