(menafn – ecpulse) U.K. inflation halted its drop in October on higher university tuition fees as MPC policy makers weigh the efficacy of stimulus on the economy, ahead of tomorrows BOE quarterly inflation report.
Todays data showed that CPI for the year ended October rebounded sharply to 2.7% from 2.2% in September, the slowest in nearly three years, exceeding analysts forecasts of 2.4%, as tuition fees added 0.32 percentage point to the rate, while food and transport costs also helped in raising the rate.
On the monthly basis the reading showed 0.5% advance from 0.4% in September.
Annual Core CPI, which excludes alcohol, food, tobacco and energy prices, rose to 2.6% from 2.1%.
Other inflation gauges showed a drop as retail price index soared to 3.2% on the annual basis from 2.6% while surged to 0.6% from 0.5% on the month.
Annual PPI output lingered at 2.5% while the yearly input gauge edged up 0.1% from a revised of -1.0%.
Inflation rebounded despite that oil prices fell in October to touch a low of 84.68 a barrel after opening the month at 97.37 to resume its drop for a second straight month.
On the other hand, the sterling pound retreated against the euro, referring that the euro area is the U.K.s main trading partner, giving a room to some inflationary pressures as the EUR/GBP pair rose to a high of 0.8163 last month after hitting bottom of 0.7754 in July.
Moreover, the BOE has forecasted in its Augusts quarterly inflation report that inflation would go below the 2% target by the end of 2013, where it may raise its forecasts in the awaited inflation report due on Wednesday on the back on an expected rise in energy and food prices.
BOE Governor Mervyn King said inflation is likely to remain above the banks target of 2% “well into next year.”
Last week, the BOE opted to leave both interest rate and APF quantity on hold, probably waiting for the FLS program, announced three months ago, to reap its fruits on the economy and till assessing the effect of the latest 50 billion-pound program which was announced in July and ended last week.
Now, there are suspicions regarding the non-standard measures as they are seen by some analysts as a no longer effective tool to stimulate the economy and started to reignite inflationary pressures, which interprets the banks halt to continue its asset purchase as they see the FLS program more decisive weapon.
It seems that tomorrows inflation report will give no chance for further quantitative easing as it will include a hike in inflation forecasts.
On the other hand, the report, which will be followed by a presentation by King, is predicted to encompass a cut in growth forecasts despite the rebound in U.K.s GDP in the third quarter as the economy hit a robust 1.0% expansion, leaving three consecutive quarters of contraction.
The minutes of Octobers decision showed there may be a split among the nine-panel member this month as “some members felt that there was considerable scope for asset purchases to provide further stimulus,” whilst “other members, while acknowledging that asset purchases had the scope to lower long-term yields further, questioned the magnitude of the impact that lower long-term yields on corporate debt and equity would have on the broader economy.”
Meanwhile, the pound is showing a rebound versus the greenback, after falling for four consecutive sessions, to trade around 1.5887 from the sessions opening todays of 1.5874.