UK Inflation Holds Steady At Highest Level In Over Five Years

Inflation in Britain held steady at a five-year high in October, remaining above the Bank of England's 2% target for the eighth consecutive month, after breaking through the threshold for the first time in three years in March.

According to data released by the Office for National Statistics (ONS) on Tuesday (17 October), inflation as measured by the Consumer Price Index (CPI) rose 3% year-on-year last month, unchanged from the growth recorded in September, which was the highest level in over five years.

The figure, however, was slightly below analysts' expectations for a 3.1% increase.

"The spike in inflation should be temporary, as the effect of the weaker pound filters through to prices," said Ben Brettell, senior economist at Hargreaves Lansdown.

"And the Bank has already responded, with [Governor Mark] Carney and colleagues raising interest rates last month.

"In truth this small increase in borrowing costs probably won't do much to dampen inflation. But it should fall back regardless as the currency effect drops out of the figures. That said it looks like it will be a slow decline from here."

The ONS said the inflation rate for food and non-alcoholic beverages continued to increase to 4.1%, the highest since September 2013.

The price of recreational goods also increased from the previous month, while the cost of fuel and furniture prices fell, as did owner occupiers' housing costs.

On a monthly basis, inflation climbed 0.1%, after rising 0.3% in the previous month. Analysts had expected a 0.2% increase.

Meanwhile, core inflation, which excludes volatile items such as energy prices, was unchanged at the 2.7% rate recorded in September, which was the highest on record since 2011.

The latest report is in line with the forecast issued by the BoE earlier this month, when it said it expected CPI inflation to peak at 3.2% this year, before falling to 2.4% and 2.2% in 2018 and 2019 respectively.

"We think that CPI inflation will be back below 3% by the end of the year and end 2018 at around 2.25%, as the inflationary impact of sterling's fall fades," added Ruth Gregory, UK economist at Capital Economics.

"As a result, the figures do not alter our view that the Monetary Policy Committee will pause for the time being before raising interest rates again in the second quarter of 2018."

The inflation data comes only a day before the release of the latest snapshot of Britain's labour market, which is expected to show average weekly earnings excluding bonuses only grew 2.2% year-on-year in September.

Economists have previously warned the squeeze on households was being exacerbated by subdued wage growth.

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