U.K. Inflation Nears Two-Year High

LONDON--U.K. consumer prices rose at the fastest yearly pace in nearly two years in September, but statisticians said there was little evidence so far the uptick was driven by the recent slump in sterling.

The Consumer Price Index rose by 1.0% in the year to September, the Office for National Statistics said, the highest increase since November 2014. Economists polled by The Wall Street Journal had expected annual inflation to accelerate to 0.9% on the year from 0.6% in August.

The pickup in inflation was driven by a seasonal rise in clothing prices, as well as an increase in hotel-stay and fuel prices, data showed.

The pound has fallen sharply since the U.K.'s June 23 vote to leave the European Union, triggering a steep, 7.8% rise in prices paid by businesses for their raw materials in August. The rise in costs eased to 7.2% on the year in September, and there was little sign so far that it was feeding into higher prices for shoppers.

"There is no explicit evidence the lower pound is pushing up the prices of everyday consumer goods," the ONS's Head of Inflation Mike Prestwood said.

Statisticians said there is anecdotal evidence that retailers had hedged against a fall in the pound, and may not face cost pressures to raise their prices for some months.

However, earlier this month consumer goods giant Unilever PLC began raising the prices it charges British retailers, citing the rising costs of its imports.

Most economists expect sterling's fall will fuel a sharp revival in price growth, which has been largely dormant for years. The Bank of England also expects the decline to push inflation back to its 2% target by around the third quarter of 2017.

BOE Gov. Mark Carney Friday said policy makers will tolerate a small rise in inflation above its target, since a rise in interest rates would push unemployment higher. Together with similar comments from policy makers in the U.S. and Japan, that has fueled concerns that inflation rates around the world will rise more rapidly than previously anticipated, prompting a sharp selloff this week in bonds issued by the U.K. and other governments.

Combined with the uncertainty around the U.K.'s future trade arrangements, which analysts say will dampen business climate and tighten labor market conditions, higher inflation could lead to a fall in consumer spending, one of the main drivers of the British economy-hurting the U.K.'s growth prospect.

So far, there has been limited signs of that, with retail sales growing at a healthy pace over the summer. Official retail sales data for September are scheduled for release later this week.

Write to Paul Hannon at [e-mail] and Wiktor Szary at [e-mail]

(END) Dow Jones Newswires

October 18, 2016 05:35 ET (09:35 GMT)

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