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U.K. inflation sticks steady for third straight month

A generic picture of a some British sterling money in coins and bank notes. Britain’s inflation rate held stead for the third consecutive month in December.

Catherine Benson/Reuters

British inflation held at 2.7 per cent for the third month running in December, while producer prices dipped below forecast as a rise in utility bills was offset by lower fuel costs.

Some analysts had feared a higher headline inflation number and financial markets on Tuesday took the figures as modestly reassuring for British consumers and for policymakers struggling to fend off recession.

But the numbers were unlikely to make it any easier for the Bank of England to push ahead with more moves to stimulate growth.

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"It's a relatively good number. If you look at the core (inflation) as well that's down to 2.4 per cent," said Deutsche Bank economist George Buckley.

"It's still too high. It needs to come down further obviously," Mr. Buckley said, suggesting slack in the economy could help bring down inflation over the course of the next year. "But for the moment it's remained sticky."

The Office for National Statistics said utility prices rose 3.9 per cent on the year while fuel costs fell by 0.2 per cent. It said the biggest downward pressure on the index came from a fall in transport costs as airlines cut fares.

Prices at the factory gates rose 2.2 per cent on the year, below a Reuters poll forecast of 2.4 per cent.

Stubborn inflation, above the Bank of England's 2-per-cent target since November 2009, is likely to have been a key argument against more quantitative easing at the bank's monthly policy meeting last week.

Several analysts said higher food costs – up 13.4 per cent from domestic producers – would likely push consumer inflation back above 3 per cent at some point this year. That would force central bank governor Mervyn King to write a letter to the finance ministry explaining why he is so far off target.

"Looking further ahead it looks likely that we'll get another inflation overshoot in 2013," said Commerzbank economist Peter Dixon. "It's entirely possible that by mid-year we'll get a very sharp spike in inflation back above 3 per cent."

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High inflation has put pressure on consumer spending, which accounts for around two thirds of all expenditure in the British economy.

The central bank's latest quarterly forecasts, released in November, showed inflation peaking in the third quarter of 2013, falling below the target only a year later.

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