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UK Nov inflation rises unexpectedly to 6-mth high

LONDON - British inflation rose unexpectedly to a six-month high in November, driven by a record rise in clothing costs and the biggest jump in food prices in over a year, data showed on Tuesday.

Sterling rose and gilts fell on the figures, which may make it harder for the Bank of England to justify injecting more money into the economy if growth slows sharply next year, and reinforced expectations that interest rates could rise towards the end of next year.

The Office for National Statistics said annual consumer price inflation rose to 3.3 percent last month from October’s 3.2 percent, marking the 11^th consecutive month that it has been more than one percentage point above the BoE’s 2 percent target.

Analysts had expected an unchanged reading and are braced for even further rises at the start of next year when VAT sales tax jumps to 20 percent from 17.5 percent.

BoE Deputy Governor Charles Bean said on Monday that policymakers were watching price pressures “like proverbial hawks” and said inflation had been above target for an uncomfortably long time.

But most investors do not expect the BoE to raise interest rates for another year at least, and some reckon the impact of the government’s spending squeeze and the euro zone debt crisis could keep rates at record lows for much longer.

“It reinforces our view that the Monetary Policy Committee will not embark on any further QE,” said UBS economist Amit Kara, predicting a rate rise in the third quarter of 2011.

The BoE forecast last month that inflation will be above 3 percent for most of next year and is not expecting it to fall back to the 2 percent target until 2012.

“It’s a disappointing number and it’s only going to get worse in the next couple of months,” said BNP Paribas economist Alan Clarke. He expects utility bills to push up inflation in December, even before January’s VAT hike.

A breakdown by category showed food and drink prices rose an annual 5.5 percent, their biggest gain since May 2009, driven by increases in the cost of bread, cereals and poultry. Wheat prices have surged around 60 percent since June due to poor weather in Russia, Australia and Argentina.

Clothing prices rose by an annual 2.1 percent, their fastest rate since comparable records began in 1997, against a backdrop of higher cotton prices and the imminent rise in VAT.

Slowdowns in the pace of inflation for transport, recreation and culture, and restaurants and hotels to their lowest since 2009 were not enough to stop the rise in the overall figure.

On the month, consumer price inflation picked up to 0.4 percent from 0.3 percent in October.

The retail price inflation gauge, which includes more housing costs and is the benchmark for many wage deals rose unexpectedly to 4.7 percent from 4.5 percent in October.