VINACHEM

The UK price index posted gains in November, surpassing earlier predictions and stirring hopes of quicker economic growth and monetary policies normalizing in a shorter timeframe; yet, the British business community is not completely enthusiastic about the entire post-Brexit reality.

Kristian Rouz – Inflation in the UK last month accelerated to its quickest pace since October 2014, led by clothing retail prices as the weaker pound and higher fuel costs resulted in business expenses being passed on to consumers. Costs of imported goods rose by roughly 15pc, the greatest surge in the past five years.

Quicker inflation is expected to drive broader economic growth in the medium-term, along with the fiscal stimulus provided by the Exchequer. Meanwhile, the Bank of England (BoE) might consider normalisation of its monetary policies sooner than planned as inflation draws nearer to the BoE’s 2-percent target.

UK inflation has accelerated to 1.2pc in November from 0.9pc the previous month, and the consumer prices index is at its highest since late 2014, the Office for National Statistics (ONS) reported on Tuesday. The measure has also beaten earlier estimates, as predictions had weighed the November prices index at 1.1pc. The uptick in domestic UK inflation is a direct consequence of the Brexit-inflicted devaluation of the pound sterling, which has fallen by 13.87pc year-to-date. Currently at $1.2679, the sterling had crashed to as low as $1.19 earlier this year, and the 15-percent increase in imports prices in the UK correlates with the FX market dynamics.

Another factor contributing to the quicker inflation in November is the gradual increase in global oil prices that month stemming from the speculation surrounding the OPEC deal to reduce the world's oil supply.

December inflation, therefore, is poised to gain further as oil prices have been steadily advancing after the deal was reached this month. Higher oil prices resulted in higher logistical expenses in the UK, reflected in higher consumer prices as well.

Clothing retail prices have gained 4pc since June, whilst fuel prices have increased by 7.4pc year-on-year. In a separate report, the ONS said UK producer (factory gate) prices increased by 2.3pc year-on-year in November, the highest since April 2012. Manufacturing input prices, which include raw materials, fuel and other processing costs, skyrocketed by an annual 12.9pc. Therefore, further gains in the UK inflation are most likely.

Meanwhile, the BoE has all but abandoned its quantitative easing rhetoric, saying rates could move “in either direction” next year. The regulator announces its final decision on base borrowing costs for this year on Thursday, and is expected to leave rates unchanged at 0.25pc.

However, the British Chamber of Commerce (BCC) sees broader economic growth as slowing in 2017 to 1.1pc from an average estimated 2.1pc this year. In 2018, the BCC said, the UK’s economy will expand by 1.4pc. The BCC is the nation’s biggest special interest group representing UK private sector enterprises.

Longer-term outlook on inflation, however, is more subdued. After the shockwaves of Brexit and dearer oil settle, inflationary pressures will ease once again due to the high levels on household indebtedness, wage stagnation and lack of worker bargaining power. Moderate longer-term inflation is seen as hampering growth, therefore, the current spike in price gains might be a good opportunity for the UK’s public and private sectors to expand their domestic operations. - Sputnik News