UK inflation set to rise on soaring fuel and energy prices

17th July 2018 | Commercial Energy

A consensus of economists expects the Office for National Statistics’ (ONS) June Consumer Price Index (CPI) to come in at 2.6%, up from 2.4% in both May and April. The last time CPI was higher was in February, when inflation was 2.7%.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, expects a stronger reading to match February’s figures. “The contribution to inflation from motor fuel, electricity and natural gas prices likely leapt.”

He noted that 10 of the 12 largest energy suppliers – including British Gas, Scottish Power, EDF Energy – have announced price rises which will kick in over the summer. “In addition, BRC (British Retail Consortium) data suggest that core goods inflation rose.”

Energy prices

Mr Tombs was pointing to figures which showed that BRC’s non-food shop price index jumped by 0.9% month on month, marking the biggest June increase since the BRC’s records began in 2006. That increase was due to higher price for clothing and recreational goods.

A further rise in CPI is likely to strengthen the case for a Bank of England interest rate hike next month, though concerns that prices are rising faster than wages could see rate-setters have second thoughts. The latest data from the ONS show that average earnings increased by 2.5% in the year to May, up just slightly from 2.4% the previous month.

Ed Monk, an associated director for personal investing at Fidelity International, said, “If inflation does jump back up after this weakening in pay growth, then it adds to the conundrum for the Bank of England’s Monetary Policy Committee who are desperate to deliver a rate hike in August’s MPC meeting.

“Higher inflation would support that position but an absence of sustained real wage growth as well as ongoing fears about the impact that Brexit will have on the UK economy means that we could see the ‘unreliable boyfriend’ make an appearance again if Mark Carney and the central bank is forced to make another U-turn come August.”

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