Post-Brexit vote surge in UK inflation may have peaked at 3%

Signs that Britain’s post EU-referendum surge in the cost of living has peaked have emerged after the annual inflation rate remained unchanged at 3%.

In a surprise to the Bank of England and the financial markets, cheaper fuel and furniture prevented inflation as measured by the consumer prices index from picking up in October.

The Bank’s governor, Mark Carney, had been expecting inflation to breach the 3% mark, forcing him to write an explanatory letter to the chancellor Philip Hammond.

But the latest data from the Office for National Statistics provided evidence that the impact of a weaker pound since the June 2016 Brexit vote has started to fade.

The ONS said both the headline CPI and a newer CPI measure that includes housing costs had remained unchanged last month – the CPI at 3% and CPI(H) at 2.8%. So-called core inflation – which excludes food, energy, alcohol and tobacco – remained at 2.7% for a third month.

Separate ONS figures for producer price inflation – a guide to price pressure at an early stage in the pipeline – fell back sharply last month.

The cost of goods leaving UK factories increased by 2.8% in the year to October, down from 3.3% in the year to September. Industry’s fuel and raw material bills rose by 4.6% in the 12 months ending in October down from 8.1% in September.

James Smith, UK economist at ING bank, said the news on inflation would make Threadneedle Street cautious about further increases in interest rates following the quarter-point rise earlier this month.

“At 3%, inflation looks like it has peaked and without further signs of domestically-driven price pressures, the Bank of England will tread carefully,” Smith said.

Chris Williamson, UK economist at IHS/Markit said there would be “red faces” all round after inflation had failed to rise as expected, not least at the Bank of England.

“The recent surge in price pressures is primarily due to the depreciation of the sterling since last year’s EU referendum, which has increased the cost of imported goods and services, but today’s numbers will add to the sense that the worst of this impact has already passed. Data on company costs, which tend to change ahead of changes in consumer prices, are already showing signs of having peaked earlier in the year,” Williamson said.

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