UK inflation rises to 2.9pc in May

Dhaka,  Wed,  20 September 2017
Published : 13 Jun 2017, 17:52:09
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UK inflation rises to 2.9pc in May

Inflation jumped unexpectedly to 2.9 per cent in May, its highest level in nearly four years, as the slump in the pound in the wake of last year's Brexit vote continues to feed through into price increases.

City of London analysts had expected the annual rate of price increases to remain steady at 2.7 per cent.

May's inflation rate was the highest since June 2013, reports The Independent UK. 

The biggest contributor to the increase in the rate were games and toys, particularly computer games, with upward pressure also coming from electricity and food prices, according to the Office for National Statistics.

Core inflation, which strips out volatile items such as food and fuel, rose to 2.6 per cent, up from 2.4 per cent previously.

Inflation is already overshooting the Bank of England's most recent forecasts.

The Bank, in its May Inflation Report, projected average inflation in the second quarter of 2017 of 2.65 per cent.

At that time it expected inflation to peak at 2.82 per cent in the final quarter of this year and some members of the Bank's Monetary Policy Committee have signalled their willingness to vote to raise rates if inflation overshoots.

The pound rose in the wake of the data, hitting $1.2700, up 0.37 per cent on the day, suggesting many traders are betting on an early rate rise.

But some analysts still expect the Bank to hold off from tightening monetary policy at its meeting this week.

Paul Hollingsworth of Capital Economics argued that inflation was likely close to peaking.

"Today’s figures shouldn’t worry the MPC and, coupled with the ongoing political uncertainty, we expect it to unanimously vote to leave interest rates on hold at tomorrow’s meeting," he said.

"We doubt that a majority of MPC members will feel compelled to raise interest rates this year," said Samuel Tombs of Capital Economics.

"Wage growth and inflation expectations remain consistent with CPI inflation falling back to the 2 per cent target in late 2018, once the import price shock has passed."

Rising inflation is squeezing real living standards, as it outstrips average wage increases again.

The most recent ONS jobs report showed nominal wages rising by just 2.4 per cent in March.

New figures due on Wednesday are expected to confirm a sharp fall in real wages in the three months to April.

Household consumption supported the economy in the wake of last year's Brexit vote, but consumer spending faltered in the first quarter of 2017 as inflation ate into real incomes.

Overall GDP growth dipped sharply to 0.2 per cent, down from 0.7 per cent previously.

There were some signs of easing costs pressures for firms, with the ONS reporting that factory input prices rose at an annual rate of 11.6 per cent, down from April's 16.6 per cent rate and lower than the 13.5 per cent growth City analysts had expected.

Factory output prices were 3.6 per cent higher than a year earlier, unchanged from the rate in April.

The ONS said there was some downward pressure on consumer inflation from falls in fuel prices and air fares, reflecting the timing of Easter this year.

A Treasury spokesperson stressed the support being provided to households.

 "The Government is helping families with the everyday cost of living by keeping taxes low, freezing fuel duty and increasing the National Living Wage," they said.

But the TUC General Secretary Frances O'Grady said ministers needed to take more direct action to stop the slide in real wages.

“It’s time to lift the artificial pay restrictions in the public sector. Our hardworking nurses and teachers are long overdue a pay rise,” she said.

 
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