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UK March inflation strongest since Dec 2014, boosted by air fares

Tuesday, April 12, 2016 - 16:38

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British inflation hit its highest level since December 2014 last month, as the Easter holiday pushed up air fares, official data showed on Tuesday.

[LONDON] British inflation hit its highest level since December 2014 last month, as the Easter holiday pushed up air fares, official data showed on Tuesday.

Consumer prices rose 0.5 per cent compared with a year ago, the Office for National Statistics said, compared with a 0.3 per cent increase in February.

Economists in a Reuters poll had expected a 0.4 per cent annual rise.

British inflation is rising after falling below zero last year, but is still well the below the Bank of England's 2 per cent target, as it has been for more than two years.

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Last year it was zero, the lowest since comparable records began in 1950.

Air fares surged 22.9 per cent between February and March this year, a jump that reflected the timing of the Easter holidays.

Clothing and footwear also contributed to higher inflation, although food and petrol prices dragged.

The BOE said in February that it expected inflation to stay below 1 per cent all year and to undershoot its target until 2018, due to the global slump in oil prices, the effect of past rises in sterling and lacklustre wage growth.

North Sea oil prices rose 10 per cent last month and have recovered further in April so far, after slumping around 35 per cent in 2015.

Fears that a weakening global economy and sharp stock market falls might sap the strength of Britain's moderate domestic recovery mean few economists expect the BOE to raise rates before early next year.

Many in financial markets think it could take much longer, and see a small chance that the BOE could even be forced to cut rates below the record-low 0.5 per cent where they have languished for almost seven years.

An ONS measure of core consumer price inflation - which strips out changes in the price of energy, food, alcohol and tobacco - rose to 1.5 per cent, its strongest since October 2014. Economists had expected it to rise slightly to 1.3 per cent.

British consumers reined in their spending last month, according to two separate surveys published on Tuesday which added to signs of a slowdown in the country's economy.

There were other signs that inflation pressure is slowly building again. Factory gate prices fell 0.9 per cent year-on-year, the smallest decrease since November 2014 and compared with forecasts of a 1.0 per cent annual drop.

The ONS also released figures for February house prices, which showed a 7.6 per cent annual rise across the United Kingdom as a whole, slowing slightly from 7.9 per cent in January but still stronger than for much of last year.

Prices in London alone rose 9.7 per cent, slowing from 10.8 per cent in January. A shortage in housing supply is expected to keep the market under pressure.

REUTERS

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