+/www.bloomberg.com/ By Julia Kollewe
London, Feb. 18 (Bloomberg) -- Britain's inflation rate probably dropped last month, a temporary decline caused by retailers' post-holiday discounting, economists said.
The Bank of England's main gauge of annual inflation, which excludes mortgage-interest payments, probably fell to 2.6 percent from December's 2.7 percent rate, staying above the bank's 2.5 percent target for a third month, according to the median forecast of 20 economists surveyed by Bloomberg News. The government will release the inflation figures today.
The U.K. central bank this month reduced interest rates to the lowest since 1955 even as it revised up its inflation forecast. It cited ``temporary influences'' including higher housing and oil costs that will ``unwind.'' Sporting goods seller JJB Sports Plc and Next Plc, the third-largest U.K. clothing retailer, cut prices in January to boost sales.
``Inflation appears to be a secondary issue'' for U.K. central bankers, who are more concerned about economic growth, said John Butler, a former Bank of England economist now at HSBC Bank Plc. ``Inflation is on a rising trend and should jump back up to 2.7 percent in February.''
The bank last week raised its forecast for inflation, predicting it will climb to around 3 percent this year, then ease back to the 2.5 percent target by the end of next year. House prices rose in January at the fastest pace since records began in 1991, according to Nationwide Building Society, the U.K.'s fifth- largest mortgage lender.
Gas Prices, War Threat
Gas station operators have passed on gains in crude oil prices to consumers, and fuel prices may rise further in the event of a war with Iraq. Any disruption to shipments from the Persian Gulf may push the cost of crude oil to as much as $40 a barrel, analysts have said.
BP Plc, Royal Dutch/Shell Group, Tesco Plc and J Sainsbury Plc, four of the U.K.'s biggest fuel retailers, last week raised the price of petrol at the pump by 0.5 pence a liter, an increase of 0.7 percent.
Retail prices probably dropped 0.2 percent in January from December, economists predicted.
``The key influence in January is usually the depth of discounting in the New Year sales,'' said Philip Shaw, chief economist at Investec Bank U.K. Ltd. ``Price cutting in January 2002 was relatively meager and this year probably saw more aggressive discounting, putting downward pressure on inflation.''
The Bank of England said the threat of war with Iraq may further sap business and consumer confidence and lowered its economic growth forecast to about 2.5 percent this year and 2 percent by the end of 2004. Service industries, two-thirds of gross domestic product, grew in January at the slowest pace in 11 months while manufacturing orders shrank, surveys have shown.
Futures trading suggests investors are betting on another rate cut by the middle of the year. The yield on a sterling deposit maturing in June was 3.46 percent yesterday, compared with 3.74 percent two weeks ago.