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UPDATE 4-UK inflation posts record jump to hit 9-year peak in August

* UK inflation hits 9-year high of 3.2% in August
* Inflation jump is largest in records dating back to 1997
* Rising prices reflect last year’s ‘Eat Out to Help Out’scheme
* Bank of England sees 4% inflation for later this year
* Investors see higher …

* UK inflation hits 9-year high of 3.2% in August * Inflation jump is largest in records dating back to 1997 * Rising prices reflect last year's 'Eat Out to Help Out'

* Bank of England sees 4% inflation for later this year * Investors see higher chance of BoE rate hike next year
(Adds house price data) By Andy Bruce and David Milliken

LONDON, Sept 15 (Reuters) - Britain's inflation rate hit its
highest in almost a decade last month after a record jump that
was largely fuelled by a rebound in restaurant prices which were
artificially pushed down a year ago by government subsidies. Consumer prices in August rose by 3.2% year-on-year, the
highest annual inflation rate since March 2012 and up from 2.0%
in July, the Office for National Statistics said. Statisticians said the one-off effect of the government's
"Eat Out to Help Out" scheme, which briefly offered diners a
discount on meals to help a sector hit by the pandemic, would
vanish from next month's data.

But the Bank of England is still braced later this year for
inflation to hit 4% due to higher energy prices and pandemic
bottlenecks which it expects will fade over the course of 2022. August's 1.2 percentage point rise in the annual rate of
inflation marked the sharpest increase since detailed records
started in 1997. None of the 37 economists polled by Reuters had
expected such a strong reading, with the median forecast instead
pointing to consumer price inflation at 2.9%.

"Much of this was driven by the heavy discounts offered
under the Eat Out to Help Out Scheme last summer. That said,
there are also signs that inflationary pressures are
increasingly broad based across many sectors of the economy,"
said Hugh Gimber, global market strategist at J.P. Morgan Asset

The ONS also pointed to anecdotal evidence that shortages of
supply chain staff and rising shipping costs fed through into
food prices last month, which recorded their biggest monthly
rise for any August since 2008. Higher oil prices, global shipping problems and shortages of
components for some goods such as motor vehicles have
contributed to rising inflation in many countries including
Britain. Last month euro zone inflation hit a 10-year high of 3%,
although data on Tuesday showed U.S. underlying consumer prices
increased at their slowest pace in six months, suggesting
inflation there may have peaked.

British government bond yields rose after Wednesday's data
as investors nudged up their expectations for BoE interest rate
increases next year. A Reuters poll of economists last week suggested the BoE
will raise borrowing costs by end-2022, earlier than previously
thought, while markets price in a first increase by May and a
further rise in December. BASE EFFECT

In August 2020 the government offered diners a 50% discount
of up to 10 pounds (£14) per head on meals to kick-start the
economy. A year later, the absence of these discounts meant
restaurant prices comprised more than half of the 1.2 percentage
point rise in headline inflation last month. As with July's unexpectedly weak reading, economists said
August's surge in inflation was unlikely to unduly worry BoE
policymakers who are weighing an early end to stimulus launched
at the height of the COVID-19 pandemic.

"(These) effects are largely transitory and there is little
policy makers can do to stem this cost of living crunch," said
Jack Leslie, senior economist at the Resolution Foundation think
tank. However, the central bank faces a trickier task in judging
whether labour shortages may create longer term pressures. Last
month half of the BoE's policymakers judged that some basic
pre-conditions for a rate rise had been met, although none
thought there were sufficient grounds to tighten policy yet.

British producer price data on Wednesday showed more
persistent price pressures in the pipeline. Both manufacturers'
raw material costs and the prices they charged to customers rose
at the fastest rate since late 2011, with oil prices soaring 50%
over the past year. Separate ONS data showed British house prices in July were
8.0% higher than a year before, a much smaller increase than the
13.1% rise in June, the last month for buyers to take full
advantage of a temporary tax break on property purchases.
(£1 = 0.7235 pounds)

(Editing by Kate Holton and Angus MacSwan)