Inflation in the UK jumped by 0.2% in May to 2.9%, the highest it has been in four years, and signals a continuing fall in the UK standard of living.
GBP Fall Raises CPI
Just over a year ago, inflation stood at 0.3%, but the CPI (Consumer Prices Index) started to climb following the referendum on EU membership last June, fuelled by a dramatic fall in the pound’s value and an increase in the cost of imports. It has long since passed the nominal target of 2% set by the Bank of England and this latest increase surprised economists, who had been predicting that it would remain at 2.7%.
In a further worrying sign for the UK standard of living, the growth in inflation is outstripping the average growth in wages. This was measured at 2.1% in the first three months of 2017, and the combined effect of rising inflation and stagnant wage growth is likely to put a strain on household budgets and could lead to political pressure on the UK government to address the standard of living issues.
Inflation Breakdown
The figures released by the Office for National Statistics (ONS) reveal price rises across a number of sectors. The price of computer games and gaming equipment, most of which is imported from overseas, rose by 0.9% between April and May, along with the cost of household furniture, particularly textiles and lounge furniture, which rose by 1.2% – the largest April to May increase since 2008.
An increase in the cost of children’s clothing by 0.6% also played a role, although this may also have been affected by a drop in the proportion of clothing items on sale between April and May. There were also price rises across a range of sweets and confectionery goods, and an increase in household electricity bills.
Predictions For UK Inflation
Many economists are predicting that uk inflation will continue to rise throughout the summer although some are predicting that a drop in energy prices and a sterling rally may prevent the figure from going too much higher than 3%.
Recent notes from the Bank of England interest rate meeting however, show a growing concern about current levels of inflation. Three members of the committee voted for a rise in interest rates – early signs that there are genuine worries about inflation. Some members already feel the rises require some action to be taken.