An expected increase in UK inflation is making the Bank of England’s already difficult decision on when to pause rate hikes even harder.
UK inflation data due out Wednesday will likely show that price gains notched higher to 7% last month from 6.8% in July, according to the median of more than 30 estimates in a Bloomberg survey. It would mark the first acceleration since February, with economists attributing move to fuel price fluctuations.
The UK’s economic outlook has darkened since June, bolstering arguments that 14 consecutive rate hikes are beginning to take their toll on output. The risk of continued price increases while the broader economy stalls has stoked concern that Britain, along with Europe, is headed toward a period of “stagflation.”
The inflation data and rate decision are part of a barrage of economic announcements in the coming days that will shape investors’ decisions for weeks to come. Indicators will also show whether British companies and consumers are continuing to pull back after surprise contractions in data last month.
Bailey played down concerns about fuel prices when giving evidence to lawmakers earlier this month, noting how headline inflation has been coming down. Policymakers have instead focused on CPI components such as core and services inflation for signs of whether price increases are becoming embedded in the British economy.
Overshooting the BOE’s forecasts for a 7.1% rise in August “would probably go a long way to countering” other positive data points, said Andrew Goodwin, chief UK economist for Oxford Economics. Services inflation data may also help clarify mixed labor market signals, with wages rising at a record pace even as unemployment ticked up.
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