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UK Inflation Rises: Is the Economy Back on Track?

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UK inflation in February 2018

According to the Office for National Statistics, month-over-month, the UK (EWU) inflation index rose 0.4% in February 2018 after falling 0.5% in January 2018. The market expected a gain of 0.5%. However, year-over-year, inflation rose 2.7%, slightly below the market expectation of 2.8%. It rose 3% year-over-year in January.

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Components of inflation

The inflation improvement is mainly due to increases in transport, food, beverage, restaurant, hotel, entertainment, and culture prices. In January 2018, the inflation index fell, mainly due to a weaker rise in clothing, footwear, furniture, and household equipment prices. A sudden fall in the inflation index is always a major concern for the economy.

However, in February 2018, the index improved and suggested that the economy was back on track. Inflation rose mainly due to a stronger rise in wage growth. Improving wage growth and employment are positive economic signs.

The broader UK FTSE 100 Index fell 4% in February 2018. The iShares MSCI United Kingdom (EWU), which tracks the United Kingdom’s economy, fell 6.7%. In the next part of this series, we’ll list indicators that investors should watch for this week.

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