15 October 2002, 09:27  U.K. September Inflation Rate Increased to 2%, Economists Say

/www.bloomberg.com/ By Julia Kollewe
London, Oct. 15 (Bloomberg) -- U.K. inflation probably accelerated in September as the price of clothes climbed at the end of summer sales, analysts said in advance of a government report.
Retail prices excluding mortgage interest payments, the Bank of England's main gauge of inflation, probably rose 2 percent from a year ago after gaining 1.9 percent in August, according to the median forecast of 25 economists surveyed by Bloomberg News.
Still, inflation has remained below the government's 2.5 percent target every month but two since March 1999. That allowed the Bank of England to cut interest rates seven times last year, to a 38-year low of 4 percent. Most economists predict the bank won't change rates until the second quarter of next year.
``Rates look set to stay on hold for the foreseeable future,'' said Danny Gabay, an economist at J.P. Morgan Chase & Co. in London.
Some retailers are cutting prices to stay competitive. J Sainsbury Plc, the U.K.'s third-largest supermarket chain, pared prices by about 0.4 percent in its fiscal second quarter. Tesco Plc, Britain's largest retailer, trimmed prices by an average 1.6 percent in the first half.
The government will release the inflation figures at 9:30 a.m. London time.
Inflation `Muted'
Manufacturers aren't fueling inflation. The price of goods leaving British factories barely budged in September. Producer prices rose 0.1 percent from August after no change the previous two months, the government said yesterday.
U.K. inflation should remain below the government's target ``most of the next and possibly two years,'' said Philip Shaw, chief economist at Investec Bank U.K. Ltd. ``Inflation pressures are muted.''
The central bank is unlikely to move rates until the second half of next year, futures trading suggests. The yield on the three-month Libor contract maturing in June fell 3 basis points to 4.03 percent yesterday. A basis point is 0.01 percentage point.
From the previous month, consumer prices probably rose 0.5 percent, analysts said. A survey by the British Retail Consortium, an industry lobby, showed prices grew faster in September than in August.
``Prices usually rise in September by around 0.5 percent on higher seasonal food prices, the introduction of higher-priced clothing and increases in back-to-school charges,'' said Geoffrey Dicks, the senior economist at Royal Bank of Scotland Plc.
Inflation is under control in most of the world's largest economies. Consumer prices in the U.S. rose 1.8 percent in August from a year ago, close to the 1.6 percent year-over-year increase in 2001. German inflation slowed to 1 percent in September from 1.1 percent the previous month.

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