UK inflation unexpectedly stays put, highest since May

Tue Dec 18, 2012 7:30am EST
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By Olesya Dmitracova and David Milliken

LONDON (Reuters) - British inflation defied forecasts in November to hold at its highest rate since May, reducing the scope for the Bank of England to inject more cash into the struggling economy.

Data on Tuesday showed that annual consumer price inflation remained at 2.7 percent after a surprise jump in October, confounding economists' forecasts for a dip to 2.6 percent.

High inflation, which peaked at 5.2 percent last year, has weighed on consumer spending, holding back the economy's recovery from its second recession in four years.

Investec economist Philip Shaw said inflation was likely to rise above 3 percent over the next few months, cutting chances the BoE will add to its 375 billion pounds of bond purchases.

"We feel a likely rise in inflation is going to result in the Monetary Policy Committee keeping policy on hold, but much depends on how weak the economy is," he said.

A fall in petrol prices was not enough to outweigh increased costs for electricity, gas and food. In addition, services price inflation rose to 4.2 percent, its highest since December 2011.

Last month, the central bank said inflation was likely to be much higher over the next 18 months than expected in August. Its projections showed it would take until the third quarter of 2014 before inflation fell below the BoE's 2 percent target, nine months later than predicted in August.

Inflation has been above 2 percent since December 2009, and the target itself has been questioned.   Continued...

A man sits in a cafe in London November 13, 2012. REUTERS/Luke MacGregor