UK inflation holds steady, oil price pressures ease

Tue Apr 16, 2013 7:18am EDT
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By David Milliken and Olesya Dmitracova

LONDON (Reuters) - British consumer price inflation held steady in March at its highest level since last May, while lower oil prices suggested future rises in inflation may be smaller than feared, official data showed on Tuesday.

Annual consumer price inflation held at 2.8 percent, the same as in February and above the Bank of England's 2 percent target, although the finance minister has given the bank leeway to focus more on growth and allow for such inflation overshoots.

The central bank expects inflation to exceed 3 percent later this year, and many economists agree, seeing upward pressure from food prices, water and energy bills and the effect of sterling's sharp fall earlier this year.

But Tuesday's data included signs of easing price pressures in some quarters, with manufacturers' crude oil input costs dropping at the fastest annual rate since July and costs for metals imports also falling.

"I do think you are going to see some increases in inflation over the course of the next three or four months ... (but) we've seen lower oil prices and that could actually limit the peak in inflation," said Deutsche Bank economist George Buckley.

Sterling and bond prices did not move after the data.

The Bank of England will publish new inflation forecasts next month, and some economists think this could help break the deadlock at the central bank over whether to restart its program of asset purchases to help Britain's stagnant economy.

"With the marked retreat in oil and commodity prices currently diluting the upside risks to consumer price inflation, it looks ever more likely that the Bank of England will sooner or later undertake more stimulative action," said Howard Archer of IHS Global Insight.   Continued...

A customer looks at fruit in a store in central London April 12, 2011. REUTERS/Stefan Wermuth