LONDON?Prices charged by companies at the factory gate in the U.K. rose in October at the fastest annual rate for more than four years, as a slide in sterling following the country's decision to exit from the European Union fueled a rapid pickup in raw material costs.
Consumer prices, though, rose at a slower annual rate in October than they did in September, a result of slower gains in clothing, footwear and some other prices than a year earlier.
The U.K.'s Office for National Statistics said Tuesday that British producers' output prices rose 2.1% on the year in October, the fastest annual rate of growth since April 2012.
The pickup followed a surge in input costs from a weaker pound, which was 18.5% lower against the currencies of the U.K.'s major trading partners in October than a year earlier. Input prices rose 4.6% between September and October?the fastest monthly rate of growth on record?and were 12.2% higher on the year. Two-thirds of British firms' raw materials are imported, the ONS said.
The acceleration in wholesale prices hasn't yet fed into a sustained pickup in the prices faced by consumers, the ONS said, although officials at the Bank of England expect consumer-price inflation to accelerate as the cost pressures faced by companies feed into the broader economy. Annual consumer-price inflation was 0.9% in October, down from 1% in September.
The expected pickup in inflation presents the BOE with a dilemma. The central bank forecasts that Sterling's slide will push inflation above its 2% annual target during the first half of next year. But it also believes June's Brexit vote will likely weigh on growth in the months and years ahead, as uncertainty over the country's future ties to its biggest trading partner weigh on spending, investment and hiring.
Faster inflation on its own may drag on growth by squeezing consumer spending.
BOE Gov. Mark Carney, who is due to give testimony to lawmakers later Tuesday, said this month that officials are prepared to raise borrowing costs to restrain too-rapid a pickup in inflation or to cut them again if the economy weakens.
The BOE's rate-setting panel in August cut the central bank's benchmark interest rate to 0.25% as part of a package of measures to cushion the economy from the surprise referendum result.
Write to Jason Douglas at email@example.com and Wiktor Szary at Wiktor.Szary@wsj.com
(END) Dow Jones Newswires
November 15, 2016 05:25 ET (10:25 GMT)
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