British inflation held at its highest level in five and half years in October, and wrong-footed expectations from the Bank of England and other economists that it would hit a new peak. But, as Sonia Legg reports, Britain is still facing many challenges including a weak government and Brexit uncertainty.
Shopping is a national past-time in Britain. but buying the essentials at the moment is no fun. British grocery inflation hit 3.4 percent in the 12 weeks to November 5 - its highest level for four years. Butter, fish and cola saw the biggest price increases with crisps and fresh poultry among the few items to fall. Kantar Worldwide's research says the increases will add almost 144 pounds to the average annual cost of a typical family's grocery bill. (SOUNDBITE) (English): JANE FOLEY, SENIOR CURRENCY STRATEGIST, RABOBANK, SAYING: "The consumer is feeling a little bit poorer and on top of that of course he suffered an interest rate hike from the Bank of England as well, so not good news for the U.K. consumer and of course we've seen that growth in the U.K. in the last quarter grow by 0.4 percent and that compares with German growth at 0 8." There was some relief - the overall inflation rate held at 3 percent. That's a five and half year high - but not as bad as many - including the Bank of England - had expected. It meant bank governor Mark Carney didn't have to write an explanatory letter to the finance minister. But it also reinforced some doubts about the wisdom of his recent rate hike - the first in a decade. That came despite an increasingly weak government and little progress in Brexit talks. (SOUNDBITE) (English): JANE FOLEY, SENIOR CURRENCY STRATEGIST, RABOBANK, SAYING: "We are losing now without a doubt. Investment in the UK is there but it's less than it would otherwise be because of the political uncertainty because generally at the environment of strong global growth and low interest rates is very good for investment but the political uncertainty is a headwind." Britain has repeated defied the doomsayers since it voted to leave the EU. But some fear that could be about to change. Each day sees a new test for the government and it seems a lower pound. Sterling slipped again as the inflation rate was seen to weaken the case for further rate rises.