UK posts the biggest jump in annual inflation on record

Wednesday, September 15, 2021 | Danica Kirka And Pan Pylas, Associated Press

In this Wednesday, March 11, 2020 file photo, pedestrians wearing face masks walk past the Bank of England in London. The U.K. posted the biggest jump in annual inflation on record last month as global supply shortages and rising wages magnified the scale of price increases after pandemic-related discounts a year ago. (AP Photo/Matt Dunham, File)

LONDON (AP) — Consumer prices in the U.K. rose at their fastest recorded rate during August as global supply shortages and higher wages accentuated the uptick from pandemic-related discounts a year ago, official figures showed Wednesday.

The Office for National Statistics said inflation accelerated to 3.2% in the year through August from 2% the previous month. The scale of the increase month-on-month was the biggest since the CPI measure of inflation was introduced a quarter of a century ago.

The spike takes inflation way above the Bank of England's target of 2%, and is likely to ratchet pressure on policymakers to soon consider raising interest rates from record lows.

The increase was slightly more than anticipated in financial markets, with most economists predicting a spike to 3%.

Because inflation has risen by more than one percentage point above the Bank of England's target, its governor, Andrew Bailey, will have to write a letter to Treasury chief Rishi Sunak explaining what's going on.

Bailey is widely expected to say that much of the increase was due to temporary factors related to the pandemic. Over the past decade, the central bank has tolerated higher-than-target inflation provided it thought the underlying reasons behind the increase were transitory.

After all, restaurant prices were a big reason behind the August spike, as last year the government offered discounts on meals via its Eat Out to Help Out scheme in an attempt to bolster the economy in the wake of the first national lockdown.

Under the program, sitting customers were able to receive a 50% discount on food and non-alcoholic drinks at participating restaurants between Monday and Wednesday up to 10 pounds ($13.50) per person. It was a hugely popular scheme with more than 100 million discounted meals eaten in the U.K.

There were other reasons behind the increase, not least the sharp spike in a raft of energy prices as the global economy recovers from the initial shock of the pandemic. That impact on inflation is being felt around the world.

A pick-up in demand after lockdown restrictions were eased, higher wages, global supply chain issues, a lack of drivers to transport goods and price rises related to Britain's departure from the European Union also contributed to the uptick.

Economists said inflation is likely to peak at a higher level than previously thought, perhaps beyond 4%, though much will depend on the pandemic's path over the winter.

As a result, many think the Bank of England could stop its program of asset purchases in financial markets at the end of this year and increase its main interest rate from the record low of 0.1% as soon as the first half of 2022.

“The data seem consistent with the Bank of England’s expectations of some modest tightening in the coming years,” said Debapratim De, senior economist at Deloitte. "If U.K. growth continues as currently forecast, we are likely to see the first rate rise by next summer.”

7 Retail Stocks to Buy After Strong Quarterly Earnings

Earnings season follows a predictable pattern. Bank stocks report first; then big tech stocks weigh in. And now, late in earnings season, we hear from the retail sector. Investors were expecting strong numbers and, for the most part, retailers delivered.

However, for some retailers, this may become a “sell the news” event.

That’s because on August 16, before the big-name retailers reported, the U.S. Retail Sales Report showed a 1.1% decline in retail sales in July from June. So while retail sales for the last two quarters will be strong, investors are wondering if the sector is entering a period of slowing growth. Concern about the Delta variant perhaps bringing more restrictions to the retail sector adds to the concern.

However, sectors don’t move in lockstep. In every market, there are strong performers even in tough economic conditions. This was true during the pandemic. And it’s true in the recovery. Summer is traditionally a slower season overall for retail. The July numbers probably do not reflect all of the back-to-school purchases. And, of course, stores are already beginning to prepare for the holiday season.

View the "7 Retail Stocks to Buy After Strong Quarterly Earnings".

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