UK inflation reaches highest rate since June 2014
The Consumer Prices Index (CPI) has revealed that the UK’s inflation rate is now at its highest for two-and-a-half years, due in no small part to the rising cost of fuel.
The CPI unveiled that the UK’s inflation rate last month was 1.8%, up from 1.6% in December 2016. It’s the fourth successive month that inflation is grown, taking it to its highest point since June 2014.
The Bank of England set a target inflation rate of 2% for the early part of this year, but forecasts additional inflation growth to 2.7% by 2018.
Downward Pressure On Sterling
Downward trading pressure on sterling since the Brexit vote is beginning to put upward pressure on the cost of products and services. Against the dollar, sterling is now worth one-fifth less than it was prior to the June 23rd EU referendum and it’s unlikely that this trend will reverse anytime soon.
The data suggests that the price of manufactured goods leaving factories was up 3.5% since the turn of the new year, due to UK manufacturers having to pay more to import the raw materials required.
GBP/USD 5 Minute Price Chart:
Drivers Of UK Inflation
Fuel prices are also on the rise, hitting British motorists hard. Consumers are experiencing price hikes for everything from foodstuffs and computing to kitchen tools.
Mike Prestwood, head of inflation, Office for National Statistics (ONS), said: “The costs of raw materials and goods leaving factories both rose significantly, mainly thanks to higher oil prices and the weakened pound.”
Further Rises To Come
With Prime Minister Theresa May due to invoke Article 50 and begin proceedings to leave the European Union (EU), further upward pressure on the price of goods looks inevitable. In addition, it’s reported that increasing energy charges are likely to be passed on to consumers in the form of rising energy bills.
Chris Williamson, chief business economist, IHS Markit, believes wage growth across the UK is likely to stall as the economy waits on Brexit progress during the remainder of the year.
“Wage growth has crept up to 2.8%. However, our expectation is that it will slow, or at least remain muted, in 2017 as the labour market cools, providing the Bank of England with leeway to keep policy on hold.”