Utility bills lift UK inflation to 9-mth high

British inflation
leapt further above target to a nine-month high in February but the jump was
purely due to changes in the way utility bills are calculated, official data
showed on Tuesday.

The Office for
National Statistics said consumer prices rose 0.7% last month, taking the
annual rate to 2.5%, as forecast by economists and well above the government’s
2.0% target.

The statistics office
announced last month that changes in gas and electricity bills would hit the
index immediately rather than being phased in over several months.

Without the change in
methodology, CPI inflation would have held steady at 2.2%, the ONS said.

Still, the figures
highlight the dilemma facing the Bank of England as it confronts a slowing
economy and rising price pressures.

Investors are betting
the Bank will cut interest rates by 100 basis points before the end of the year
to shore up the economy as the global credit crisis deepens.

However, the central
bank may be constrained by concerns inflation will rise even higher in the
coming months.

The pound hit session
highs versus the dollar and euro, having earlier pared gains, while stocks
briefly extended gains after the CPI data came in as expected — trimming
expectations for near-term rate cuts.

Core inflation, which strips out oil and food prices, eased to 1.2% in
February, its lowest rate since August 2006.