UK

‘Inflation is going to go up', warns Bank of England governor Mark Carney

The rate of Consumer Price Index inflation fell to 0.9 per cent last month from 1.0 per cent in September Picture by Lauren Hurley, Press Association
The rate of Consumer Price Index inflation fell to 0.9 per cent last month from 1.0 per cent in September Picture by Lauren Hurley, Press Association The rate of Consumer Price Index inflation fell to 0.9 per cent last month from 1.0 per cent in September Picture by Lauren Hurley, Press Association

BANK of England governor Mark Carney warned Britons not to be fooled by last month's drop in inflation as he said sharp rises in the cost of living are coming.

In a hearing with MPs on the Treasury Select Committee, Mr Carney cautioned that "inflation is going up" as the plunging pound will put pressure on retailers and manufacturers to raise their prices.

He said the official figures for October were down to very volatile clothing and footwear prices, which had been impacted as retailers were knocked by unseasonally warm weather.

The Office for National Statistics (ONS) said the Consumer Price Index (CPI) measure of inflation was 0.9 per cent in October, down from one per cent in September, with economists' expecting a higher figure of 1.1 per cent.

The ONS said there was "no clear evidence" that the plunge in the value of the pound since the EU referendum result was bumping up shop prices.

However, there were signs that the currency fall was ramping up costs for manufacturers, with the Producer Prices Index (PPI) showing total input prices rising 12.2 per cent in October, compared to a 7.3 per cent rise in September.

The pound's weakness also helped push up output prices to 2.1 per cent last month from 1.3 per cent in September, the ONS said.

It comes as the latest PMI report for the manufacturing industry showed sterling's near 20 per cent slump against the US dollar and 15 per cent fall against the euro since the Brexit vote had triggered the steepest rise in purchasing costs in the survey's 25-year history.

Mike Prestwood, ONS head of inflation, said: "After initially pushing up the prices of raw materials, the recent fall in the value of the pound is now starting to boost the price of goods leaving factories as well.

"However, aside from fuel, there is no clear evidence that these pressures have so far fed through to the prices in shops."

The Retail Prices Index (RPI) – a separate measure of inflation, which includes housing costs – was 2 per cent in October, unchanged from September.

The pound, which was already lower ahead of the data, weakened further as the lower-than-expected CPI figure signalled there would be less pressure on the Bank of England to curb rising inflation.

Sterling fell 0.6 per cent to $1.24 and 1.1 per cent to €1.15.