By Wiktor Szary and Paul Hannon
LONDON--U.K. consumer prices rose at the fastest pace in nearly three and a half years in February, spurred by the pound's steep depreciation in the wake of last year's vote to leave the European Union, data showed, highlighting a potential drag to economic growth as the government prepares to formally begin Brexit divorce proceedings next week.
Britain's Office for National Statistics said Tuesday that annual inflation in the U.K. accelerated to 2.3% in February from 1.8% the previous month. This was the fastest pace of annual price growth since September 2013, and the first time consumer price inflation came in above the Bank of England's 2% target since November of that year.
The increase in the inflation rate was driven largely by rising prices for food, transport as well as culture and recreation, the data showed. Analysts polled by The Wall Street Journal expected the annual inflation rate to have been 2.1% last month.
Accelerating inflation could spell trouble for the U.K. economy, which defied gloomy predictions of an immediate Brexit hit last year, growing at a healthy 1.8% in 2016 as a whole. As wage growth struggles to catch up with price increases, consumer spending--a key engine of the U.K. economy --may soon begin to stall, potentially causing the whole economy to slow. Retail sales posted their third consecutive monthly drop in January, a sign that British shoppers may have already started to watch the pennies. Data on February sales are expected later this week.
Inflation is stirring across the developed world after a long spell of feeble price-growth that pushed central banks toward ever more radical stimulus measures. In the U.K., the revival is being fired further by a plunge in the pound since the Brexit referendum in June last year, which has seen it shed nearly a fifth of its value against the U.S. dollar.
The Bank of England expects inflation to peak at around 2.75% early next year. Gov. Mark Carney has signaled that he is prepared to tolerate an overshoot of the bank's target if it helps keep the economy on an even keel while Prime Minister Theresa May negotiates the U.K.'s EU withdrawal, due to officially begin on March 29 and last at least two years.
Write to Wiktor Szary at Wiktor.Szary@wsj.com and Paul Hannon at Paul.Hannon@wsj.com
(END) Dow Jones Newswires
March 21, 2017 05:58 ET (09:58 GMT)
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