UK growth may be more of a worry than inflation

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People walk along Camden High Street in London, Britain, September 19, 2020. REUTERS/Henry Nicholls

LONDON, Sept 15 (Reuters Breakingviews) – British inflation leapt to 3.2% in August from 2% the previous month, the sharpest increase in the annual rate on record, data showed on Wednesday. As in the United States, pandemic-related distortions are muddying the waters. The UK government subsidised eating out a year ago and the hospitality sector got a temporary reduction in value-added tax. The question for the Bank of England, as for the Federal Reserve , is whether high inflation persists.

Supply chain disruptions have boosted prices of goods on both sides of the Atlantic. And some sectors are struggling to recruit staff , pushing up wages. Brexit is accentuating these problems. Yet inflation may prove less of a problem for the UK central bank. Prime Minister Boris Johnson is raising taxes on workers next year to pay for health and social care read more , which will leave households with less disposable income. The corollary of reduced price pressures may unfortunately be lower UK growth. (By Swaha Pattanaik)

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Editing by Ed Cropley and Oliver Taslic

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