British inflation rises

Britain's annual inflation rate edged higher in October as record oil prices caused gas, electricity and other household bills to climb at their fastest rate in at least seven years, official data showed on Tuesday. The rise to 1.2 percent from 1.1 percent in September is likely to be of little concern to the Bank of England as inflation remains well below the bank's 2 percent target. In any case, the BoE is more concerned with what inflation does in coming years.
While higher energy costs have many analysts wondering over when and if they will filter through to non-utility bills, tough competition on the high street and falling goods prices have kept inflation under wraps.
"Inflation remains significantly below target in the UK and we continue to think that, on balance, interest rates are likely to remain on hold through 2005," said Melanie Baker, economist at Morgan Stanley.
Government bonds did not react to the data from the Office for National Statistics, as analysts are still divided on whether rates will climb one more time from 4.75 percent. Financial markets are increasingly convinced, however, that rates have peaked and could even fall next year.
The pound fell to an 11-month low against the euro, but that move was driven by an earlier report showing house prices tumbled at their fastest rate in 12 years.
"Inflation at these low levels, despite the pick up, is far from a hawkish signal," said John Butler, UK economist at HSBC.
The housing, water, electricity, gas and fuels component of the consumer price index (CPI) gained 4.4 percent on the year, its biggest gain since records began for this series in 1997, the ONS said.
That came as British Gas, the country's biggest supplier and a unit of utility Centrica Plc, raised its gas prices by 12.4 percent and its electricity charges by 9.4 percent from September 20.
Centrica said those extra charges would add about 47 pounds a year to the average gas bill and 25 pounds to the typical domestic power bill.
Powergen, the country's second biggest energy provider and part of Germany's E.ON, has planned a 10 percent price hike later this month and so utilities will likely be working to push up CPI in November too.
Separately, the ONS said the Retail Price Index, which includes various housing components that the CPI does not measur - like the council tax, a municipal tax - climbed to its highest since September 2000, up an annual 3.3 percent.