U.K. inflation rate accelerated to 5.2% in September, for the first time since September 2008, from 4.5% in August, above expectations of 4.9%.
After the release of the news the pound slipped against the dollar to trade around 1.5717, after reaching a low of 1.5708.
The jump was driven by the 13.0% and 7.5% rise in gas and electricity, while over monthly basis the surge to 0.6% was triggered by the 10.2% soar in the same items.
Another measure of inflation, retail price index, known the cost of living index, jumped to 5.6% in the year ended September from 5.2% and to 0.8% from 0.6% over monthly basis.
Inflation jumped last month despite the decline in oil prices, where crude closed the month at $78.69 a barrel compared with the month's opening at $88.80.
The BoE predicted that infaltion could reach 5% in 2011, yet will ease in 2012 and 2013, where it expects infaltion to reach 1.8% in the second quarter of 2013.
In October, the BoE opted to leave interest rate unchanged at 0.50% while boosting stimulus by 75 billion pounds to 275 billion pounds, responding to calls for expanding the stimulus to spur the sluggish growth.
Last week, policy maker Adam Posen said that increasing the size of the stimulus should be enough “to make a material improvement in prospects versus what it otherwise would be and it’s the right place for us to start,” referring that the bank is ready to add more stimuli to prevent what Mervin King has called the worst financial crisis ever.
Finally, policy makers responded to the ongoing calls for increasing the size the stimulus for the first time since adding 25 billion pounds to a total of 200 billion pounds on November 5, 2009 to prevent the economy from witnessing another recession.
U.K. GDP for the second quarter was downwardly revised to 0.1% from the preliminary of 0.2% while the annual reading was also revised down to 0.6% from 0.7%.
British exports were affected by the escalating European debt woes since the euro area is the largest trading partner to the Kingdom in addition to the sluggish global growth trajectory seen in the second quarter.
Briton's standard of living became the worst, according to an index which includes 10 European economies, as the skyrocketing inflation and sharp austerity measures introduced by the government lowered their purchasing power.
The International Monetary Fund (IMF) cut its growth forecasts for the U.K. to 1.1% from 1.5% for the current year and to 1.6% from 2.3% for 2012.
It seems that the BoE may face a trade off between shoring up the economy and taming inflation as expanding the APF will probably result in swelling inflation levels, thus the bank may end up with solving one problem by introducing another.
Thus, we might see higher inflation over the coming few months due to the money printing by the BoE which will probably affect household spending; thus, solving a problem by introducing another one.
The BoE said the "committee predicts the announced programme of asset purchases to take four months to complete," where the minutes of the meeting will be available at 08:30 GMT on Wednesday October 19 to show which policy makers joined Posen’s call for more stimulus.
