UK inflation unexpectedly overshoots BoE target in July

LONDON (Reuters) – Britain’s inflation rate unexpectedly overshot the Bank of England’s 2% target on Wednesday, raising the cost of living even before sterling’s slide has had much chance to feed into consumer prices.

FILE PHOTO: Shoppers browse aisles in a supermarket in London, Britain April 11, 2017. REUTERS/Neil Hall

Annual consumer price inflation rose to a three-month high of 2.1% in July from 2.0% in June, the Office for National Statistics said, bucking the average expectation in a Reuters poll of economists for a fall to 1.9%.

The older measure of retail price inflation – which this month will determine increases in many rail fares for 2020 – edged down to 2.8% from 2.9%, in line with forecasts.

Earlier this month the BoE predicted consumer price inflation would fall to a three-year low below 1.6% in the final quarter of this year, reflecting lower oil prices and government caps on household energy bills.

This is despite a sharp fall in the value of sterling, which has gathered pace since Boris Johnson became prime minister last month with the promise to take Britain out of the European Union on Oct. 31, even if that means leaving without a divorce deal.

Sterling weakened by 2.4% against a basket of major currencies in July, and this month the pound sank to its lowest since October 2016 GBPTWI=BOEL.

Businesses fear a no-deal Brexit will create major disruption at ports, further pushing up the cost of imports.

There was little immediate market reaction to the data, with analysts more focussed on the government’s Brexit policy.

“Inflation remains near target, but continued depreciation of the pound could push it higher,” Nancy Curtin, chief investment officer at Close Brothers Asset Management,

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