British inflation hit its highest level since September 2013 last month, building on its sharp rise since the vote to leave the European Union and tightening the squeeze on living costs for households ahead of a national election on June 8. Consumer prices rose in April by an annual 2.7 percent, the Office for National Statistics said on Tuesday, and economists said inflation would climb further as the fall in the value of the pound since the Brexit vote pushes up the cost of imports.
Economists taking part in a Reuters poll had predicted a rise of 2.6 percent. Much of the rise in April was due to the late timing of the Easter holiday which pushed up air fares. But the combination of sterling’s fall and higher oil prices are pushing up inflation across the board for consumers and businesses.
Last week Bank of England Governor Mark Carney warned this year would be challenging for consumers, saying that wages are about to fall in real, inflation-adjusted terms. The head of Britain’s biggest trade union group said Tuesday’s inflation data meant living standards should be front and centre of the election campaign.
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“The last thing Britain needs is another real wage slump. But rising prices are hammering pay packets,” Trades Union Congress General Secretary Frances O’Grady said. “Working people are still 20 pounds a week worse off, on average, than they were before the (financial) crash. That’s why living standards must be a key battleground at this election.”
Prime Minister Theresa May is widely expected to defeat the opposition Labour Party which is calling for an end to strict limits on public sector pay growth and higher minimum wage. Despite the inflation rise, however, the economy is far from overheating — meaning that all but one of the BoE’s eight policymakers voted last week to keep interest rates on hold.
AIRFARES SWING IN EASTER
The latest inflation figures were boosted most of all by rising airfares during the Easter holidays which last year took place in March. Rising clothing prices, higher car tax and electricity also pushed up consumer prices. One-off effects aside, some see more inflation ahead.
“We remain convinced that the market is underestimating the further upside for inflation from here,” Scotiabank analyst Alan Clarke said, adding that he expected utility bills, food costs and the weak pound to put more pressure on prices in future. Sterling briefly spiked to its highest in almost a week against the dollar before falling back.
Many economists say the impact of the fall in sterling on consumer prices will be felt more strongly in the coming months, and the central bank expects inflation to peak at nearly 3 percent by the end of this year. Capital Economics said it expected inflation to exceed 3 percent before the end of the year but saw little sign of domestic inflation pressures becoming entrenched.
Excluding oil prices and other volatile components such as food, core consumer price inflation rose to 2.4 percent, the strongest rate since March 2013 and above economists’ expectations for it to rise to 2.2 percent. Services prices – which the BoE uses as a guide to domestic inflation pressures – rose by 3.0 percent, the biggest jump since September 2013, pushed up by the higher air fares.
Factory output prices – a guide to future consumer price pressures – increased 3.6 percent, unchanged from the previous month and above forecasts of a 3.4 percent annual increase in the Reuters poll. Prices paid by factories for materials and energy rose at the weakest annual pace since November, up 16.6 percent.
The ONS said house prices in March rose at their weakest rate since October 2013, up 4.1 percent on the year. Prices in London alone grew 1.5 percent, the weakest since March 2012.