UK inflation unexpectedly hits six-month high
The UK inflation rate rose to a six-month high of 2.7 per cent in August, confounding economists' expectations who had been forecasting a fall to 2.4 per cent.
19 September 2018Data from the Office for National Statistics (ONS) has shown that the UK inflation rate rose to a six-month high of 2.7 per cent in August. It also showed that, despite the rise in the Consumer Prices Index, pay was just keeping ahead of inflation, with wages, excluding bonuses, growing by 2.9 per cent in the three months to July. Including bonuses, however, the rate was only 2.6 per cent.
"UK house prices continued to grow but at their lowest annual rate for five years, driven again by a fall in London. The housing market saw strong growth in the North West, South West and West Midlands."Howard Archer, chief economic adviser to the EY Item Club, said the fact that the inflation rise was fuelled by recreation and cultural goods meant it was probably a temporary increase. "We would expect this to unwind in next month's release," he said.
Ben Brettell, senior economist at Hargreaves Lansdown, commented, "The numbers reinforce expectations that policymakers will gently lift interest rates over the next couple of years."The figures won't come as welcome news to the Bank of England, though – they'll be desperate to leave policy unchanged until we get some clarity over Brexit and won't want to be forced into a rate rise by accelerating prices."
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UK house prices continue to grow
Mike Hardie, head of inflation at the ONS, said, "Consumers paid more for theatre shows, sea fares and new season autumn clothing last month. However, mobile phone charges, and furniture and household goods had a downward effect on inflation."UK house prices continued to grow but at their lowest annual rate for five years, driven again by a fall in London. The housing market saw strong growth in the North West, South West and West Midlands."Howard Archer, chief economic adviser to the EY Item Club, said the fact that the inflation rise was fuelled by recreation and cultural goods meant it was probably a temporary increase. "We would expect this to unwind in next month's release," he said.
Ben Brettell, senior economist at Hargreaves Lansdown, commented, "The numbers reinforce expectations that policymakers will gently lift interest rates over the next couple of years."The figures won't come as welcome news to the Bank of England, though – they'll be desperate to leave policy unchanged until we get some clarity over Brexit and won't want to be forced into a rate rise by accelerating prices."
The impact of a no-deal Brexit
Suren Thiru, head of economics at the British Chambers of Commerce, said he feared that a no-deal Brexit could force inflation higher. “Inflation surprisingly rose for the second successive month in August, largely wiping out the recent recovery in real wage growth and emphasising the continued squeeze on consumers," he said.“The strong growth in producer prices indicates that inflationary pressures further down the supply chain remain significant and could lift inflation higher in the coming months. However, the upward pressure on prices remains transitory, and inflation should resume its ease back towards target once the impact of the recent increase in oil prices drops out of the calculation.“The possibility of a disorderly Brexit is the key risk to the UK’s outlook for inflation as it could result in a substantial decline in sterling, which could significantly increase inflation and exacerbate the financial squeeze on consumers and businesses."Emma-Lou Montgomery, associate director for personal investing at Fidelity International, added, "The latest figures mean that wage growth including bonuses has once again fallen behind inflation and means that we are all getting progressively poorer again.“To rub salt in the wounds there’s also a distinct possibility that inflation could continue to climb as the oil price has recently crept up to over $80 a barrel, meaning we are likely to see prices at the petrol pumps start ticking up.“And on top of this there’s the ongoing uncertainty around the Brexit negotiations which could put an end to sterling’s recent good run. If recent sterling strength is reversed then the cost of imported goods will start going up again and UK businesses reliant on these goods will need to start hiking prices in order to protect their margins."For related news and features, visit our Enterprise and Brexit sections.Subscribe to Relocate Extra, our monthly newsletter, to get all of the international assignments and global mobility news.
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