Bank of England is too sanguine on inflation

LONDON: The Bank of England may have to change its tune on inflation. UK prices rose 3.1 percent in the year to November, the fastest pace in six years.

The central bank blames Brexit and says the pace of price increases is near peaking.

That's a bit too convenient, with further interest-rate hikes a risk to sluggish economic growth.

The cost of airfares, computer games and chocolate is soaring, according to the Office for National Statistics on Tuesday.

The fall in the pound following Britain's vote to quit the European Union has meant that companies are paying higher prices to import goods into Britain.

This has forced them to pass on costs to customers at a time when wages are stagnating. With inflation more than a percentage point above his 2 percent target, Mark Carney, the governor of the Bank of England, now has homework: he must write a "dear chancellor" letter to Philip Hammond explaining how he will get inflation back to into the target zone.

The Bank of England increased Britain's policy interest rates for the first time in a decade last month, despite acknowledging that leaving the European Union will hurt Britain's growth prospects. That's the dilemma in a nutshell. If inflation doesn't calm down as the institution hopes, Carney will have little choice but to raise rates further.

One reason he may have to consider that is a recent survey from IHS Markit of the service sector, accounting for nearly 80 percent of Britain's economic growth, which showed prices were rising at their fastest rate since 2008. That's hardly consistent with consumer price increases softening.

Tackling hotter inflation with another rate rise, meanwhile, could harm consumer spending, some of which is being fuelled by borrowing. Consumer debt has jumped 10 percent in the past year, meaning people are increasingly vulnerable to higher interest payments on mortgages, loans and credit cards.

A hint on further policy moves could arrive as soon as Thursday. Carney will host a Monetary Policy Committee meeting. The Canadian has to balance the need to control inflation with keeping consumer spending ticking over. With prices set to increase into next year, though, another rate rise may be his only option.