UK inflation rise blamed on sterling's weakness

image of English pounds and financial graph illustrating an article about UK inflation
Inflation in the UK in April reached its highest level since 2013 on the back of sterling's post-referendum weakness against the dollar and euro, the Office for National Statistics (ONS) said on Tuesday.Official data from the ONS showed the consumer price index (CPI) measure of inflation reached 2.7 per cent, up from 2.3 per cent in March and taking it further away from the government's target of two per cent.The figure was the highest since September 2013 and Bank of England economists said last week that they expected the rate would peak at three per cent later this year.Airline fares, clothes and food prices all rose during April, although there was some downward pressure thanks to a fall in the price of oil.

RPI reaches 3.5 per cent

The separate retail price index (RPI) measure of inflation, which includes local taxes and mortgage interest payments, reached 3.5 per cent in April, up from 3.1 per cent in March.Andrew Sentance, senior economic adviser at PwC, commented: “Inflation has risen to its highest level since the autumn of 2013, and this is adding to the squeeze on consumer spending shown in the latest retail sales figures."We should expect this rise in inflation to continue as the impact of the weakness if the pound feeds through into higher prices for imported goods and services.“Inflation is set to rise to around 3pc or higher in the months ahead - with prices likely to be rising faster than wages in the months ahead. The resulting squeeze on consumer spending will reinforce the slowdown in economic growth we are now seeing."

Sterling's slump the cause of inflation

Hannah Maundrell, editor in chief of money.co.uk, put the blame for the inflation rise squarely on the slump in sterling's value in the wake of last year's EU referendum.“We’re now starting to feel the real impact of Brexit on our wallets," she said. "There’s no escaping the fact that the luxury of low inflation is well and truly over with prices of goods and services rising left right and centre and the shiny new pounds in our pockets will unfortunately buy you less.“Your household budget will be stretched as the cost of fuel, energy and anything that’s made overseas is creeping up. The cost of your supermarket shop is rising too so you must act now to protect yourself from future struggles.”Chris Williamson, chief business economist at IHS Markit, added: "The timing of Easter looks to have played an important role in pushing inflation higher in year-on-year terms."But sterling's depreciation since the referendum last June is also clearly a significant factor, lifting prices for imports and likely to pile further upward pressure on consumer prices in coming months."There are nevertheless signs that inflation could perhaps rise less than many had been fearing."Survey data are already showing companies' costs are rising at a slower rate than earlier in the year, and recent weeks have seen some easing in global commodity prices, notably oil."

BCC head economist points to increased costs of raw materials

Suren Thiru, head of economics at the British Chambers of Commerce, said: "Businesses continue to report that the substantial increases in the cost of raw materials and other overheads over the past year are still filtering through the supply chain, and are therefore likely to lift consumer prices higher in the coming months."However, it remains probable that the current period of above target inflation is transitory in nature, with little evidence that higher price growth is becoming entrenched in higher pay growth."This should give the Bank of England sufficient scope to keep interest rates on hold for some time yet, despite their recent warning."For related news and features, visit our Finance section.Access hundreds of global services and suppliers in our Online Directory  Get access to our free Global Mobility Toolkit

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