British Inflation Jumps on Food and Tuition Costs

LONDON — Only just out of recession, Britain’s fragile economic recovery is running into another familiar problem: inflation.

Annual consumer price inflation jumped to 2.7 percent in October from 2.2 percent the previous month, according to official figures released Tuesday, dampening prospects that the Bank of England would move to stimulate the economy in the short term, at least.

The data from the Office for National Statistics reflected increases in university tuition fees and in food prices but did not take into account some of the latest increases in energy bills, which look set to push the headline inflation figure higher in coming months.

Inflation remains an Achilles’ heel of the British economy.

Unlike its neighbors inside the euro, Britain saw its currency fall significantly on world markets after the financial crisis, resulting in imported inflation as the exchange rate pushed up the prices of non-British goods.

Rising commodity prices and increases in the value-added tax, a consumption tax, have also played their part in stoking British inflation, which hit a peak of 5.2 percent in September 2011.

The inflation data complicate the picture for the Bank of England, which has cut interest rates to a record low of 0.5 percent and spent £375 billion, or $593 billion, on purchases of financial assets to try to stimulate growth. Last week the bank decided to keep rates and the asset-buying program, known as quantitative easing, unchanged.

The rise in inflation is likely to strengthen the hand of members of the Bank of England’s Monetary Policy Committee who are resisting more stimulus, according to a note from Steven Bryce, European economics analyst at Credit Suisse.

“Some of the increases in electricity and gas prices introduced in October did not show up in this month’s index,” he wrote. “This means that inflation was above expectations even without this component.” He said the data suggested that, once the increases in electricity and gas prices are included over the next two months, consumer price inflation “could be above 3 percent.”

But Robert Wood, chief U.K. economist at Berenberg Bank in London, said that growth remained a central concern and that the case for further stimulus of the British economy might only be delayed into next year.

Despite the fact that gross domestic product in Britain rose 1 percent from July to September, taking Britain out of recession, Mr. Wood, like many analysts, says that underlying growth is extremely fragile.

“There is a risk that the economy returns to contraction in the fourth quarter,” he said. “We believe that growth remains weak and that the case for policy stimulus will grow next year.”

Inflation is likely to hit 3 percent before falling back, he said, adding that one of the main factors pushing up the latest figures — tuition fees — was the result of government policy and therefore revealed little about the underlying economy.

Andrew Sentance, senior economic adviser to PricewaterhouseCooper and a former member of the Bank of England’s Monetary Policy Committee with a reputation for being hawkish on inflation, said that consumer price increases remained “stubbornly above the 2 percent target.”

Further increases would reinforce the squeeze on British consumers and “add to concerns about the Bank of England’s ability to achieve its price stability objective,” he said in a statement.

“If above-target inflation persists through next year, it will add to the pressure” on the central bank “to raise interest rates sooner rather than later,” Mr. Sentance said.

This article has been revised to reflect the following correction:

Correction: November 13, 2012

A headline on an earlier version of this article misidentified a commodity that was reflected in Britain’s higher inflation numbers. It was food, not fuel. The earlier version also misstated when British inflation hit a recent peak of 5.2 percent. It was September 2011, not “in September.”

Article source: http://www.nytimes.com/2012/11/14/business/global/british-inflation-jumps-on-food-and-tuition-costs.html?partner=rss&emc=rss