U.K. Inflation Ticks Up on Food, Games But Stays Below Target

(Bloomberg) -- U.K. inflation unexpectedly accelerated in February, boosted by the cost of food, drink, tobacco and computer games.

The pickup to 1.9 percent from 1.8 percent in January still leaves inflation below the Bank of England’s 2 percent target, leaving policy makers under no pressure to raise interest rates as Brexit chaos weighs on the economy. Core inflation slowed to 1.8 percent.

The largest upward contribution came from the recreational sector, particularly computer games, as prices rose more last month than they did a year earlier, the Office for National Statistics said Wednesday. Bread, cereals and vegetables pushed up food costs. These effects were partially offset by auto fuel, transport fares and clothing and footwear, which posted a smaller-than-expected rebound following the January sales.

Consumers are enjoying real spending power once again as wages grow more quickly than prices. The last time inflation held below the BOE target was in 2016. The Brexit referendum earlier that year triggered a fall in the pound and a surge in import costs.

The lifting of a cap on energy prices is forecast to push inflation back above target in the second quarter, albeit temporarily, and cost pressures are building in the labor market. But the BOE is expected to refrain from raising interest rates so long as the risk of a no-deal departure from the European Union remains.

Brexit fears continued to take a toll on the property market, with annual house-price growth slowing to just 1.7 percent in January, the least since 2013, separate figures show.

London, the worst-performing region, saw values decline 1.6 percent, the most since 2009 when Britain was in the grip of the global financial crisis.

Producer input prices rose 0.6 percent in February and were up 3.7 percent from a year earlier, while output prices gained an annual 2.2 percent.

To contact the reporter on this story: Andrew Atkinson in London at a.atkinson@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Brian Swint

©2019 Bloomberg L.P.