UK inflation ticks higher as pandemic pushes up some prices

People stock up with items from a Tesco supermarket in West Malling
FILE PHOTO: People stock up with items from a Tesco supermarket after new nationwide restrictions were announced during the coronavirus disease (COVID-19) outbreak in West Malling, Britain November 4, 2020. REUTERS/Kevin Coombs

November 18, 2020

By Andy Bruce

LONDON (Reuters) – British inflation picked up by a little more than expected in October as the COVID-19 pandemic continued to affect the cost of goods, with clothing and food prices rising during the month, official data showed on Wednesday.

Consumer prices rose 0.7% in annual terms, after a 0.5% rise in September, the Office for National Statistics said, still far below the Bank of England’s 2% target.

A Reuters poll of economists had pointed to a reading of 0.6%.

Unlike last year, food prices rose in October when people stocked up on potatoes and fruit.

Previously published shopping surveys had pointed to renewed stockpiling as health restrictions spread through the United Kingdom.

Paul Dale, an economist at consultancy Capital Economics, said there had been “pockets of pandemic-induced inflation”.

“But we suspect that the weak economy will prevent a sustained period where inflation is above the 2% target, unless there is a no-deal Brexit,” he added.

In that case, Dales said inflation could rise to 3% or 4%, pushed higher by a fall in the value of sterling.

Other economists saw potential for more inflation as cuts to sales taxes and energy bills are likely to be reversed next year.

Earlier this month the Bank of England said it expected to hit its 2% inflation target in two years’ time.

Its main focus has been on supporting Britain’s economy through one of the worst years in its history.

The ONS said prices for clothes rose in October, returning to their normal seasonal pattern after disruption this year caused by the coronavirus lockdown.

Recreation and culture represented the biggest drag on inflation last month, as prices of package holidays and cinema outings fell. By contrast, prices of computer games rose.

A new energy price cap also tempered the rise in inflation in October.

The ONS said house prices rose by 4.7% in the 12 months to September, the biggest increase in nearly three years and the latest evidence of a post-lockdown boom in the housing market.

The average price of a house in the United Kingdom hit a record high of 245,000 pounds while prices in London were more than double that at 496,000 pounds, also a record high.

Finance minister Rishi Sunak suspended a tax on house purchases in July to help the economy through the coronavirus shock and demand has also been stoked by a surge in interest in bigger homes with more access outside space after the lockdown.

(Writing by Andy Bruce; Editing by Catherine Evans and Toby Chopra)