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UK Oct inflation rate climbs to 2.7%

Vegetables and rising education costs behind the sharp rise

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UK's headline rate of inflation for October rate rose sharply to 2.7 percent, the Office for National Statistics (ONS) said on Tuesday.

The rate of inflation, the Consumer Prices Index (CPI), was 0.5 percent lower at 2.2 percent in September. An ONS statistician said food prices, especially vegetables prices, which rose after record wet over the summer hit agricultural yields were partially to blame for the October rise.

He added that education costs had also gone up, by 19.1 percent last month, after the government lifted the cap on university fees. Additionally, the Retail Prices Index (RPI) measure of inflation, which factors in housing costs, climbed to 3.2 percent from 2.6 percent.

The ONS also announced it would be introducing a new way of measuring inflation next March, the CPI-H, which will include housing costs, something that is not reflected significantly in the current headline index.

Inflation is expected to pick up further, partly because of a recently announced round of energy price rises that are expected to affect figures over the coming months.

A Treasury spokesperson said the figures were "disappointing" as the inflation rate has moved further up from the Bank of England’s target rate of 2 percent.

"Where do we go from here? Onwards and upwards. Utility bill increases are on their way. We've also got the effect of the US drought and increased food prices to factor in. I don't think we're going to get anything like the 2 percent inflation target," said Alan Clarke, economist at Scotia Bank.

Howard Archer, chief UK economist at IHS Global Insight, agreed that the data was disappointing and worrying news for consumers and the Bank of England alike.

“Furthermore, increasing energy charges by utility companies are set to exert upward pressure on inflation in the near term while food prices could well rise higher still (largely due to recent poor grain harvests) which will weigh down on consumer purchasing power. Consequently, there is a very real danger that consumer price inflation could reach 3.0 percent over the next few months,” he told CFOWorld.

The Bank of England’s Quarterly Inflation Report and governor Mervyn King’s press conference due on Wednesday afternoon may offer a clearer idea on whether the Bank of England is likely to go for more stimulus measures and in what form.       


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