UK inflation spikes at record rate in August

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The annual rate of inflation rose by 3.2% in August, up from 2% in the 12 months to July, Britain’s Office for National Statistics (ONS) said Wednesday.

The increase is the largest recorded since ONS record keeping began in January 1997.

Some of the uplift reflected coronavirus relief programs that were in place last summer, such as sales tax reductions in the hospitality sector and the government’s Eat Out to Help Out scheme, which heavily discounted restaurant meals.

But the unexpectedly sharp increase could force the Bank of England to hike interest rates sooner than anticipated, according to Berenberg senior economist Kallum Pickering.

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“Heading into an uncertain winter amid rising Covid-19 infections and worsening supply issues, the [Bank of England] may need to signal a faster pace of policy normalization to come without spooking likely already nervous markets,” Pickering said in a research note on Wednesday.

“Although the forces causing inflation are well known (global supply issues against robust demand growth), the peak and length of ongoing inflation spike remains highly uncertain,” he added.

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