UK inflation rises for first time in 2018, seen falling soon

LONDON–For the first time in 2018Britain’s inflation rate rose in July, keeping the squeeze on many households’ budgets.

“These figures show that the cost of living squeeze is not yet a thing of the past Consumer price inflation rose at an annual rate of 2.5 percent in July after holding at 2.4 percent in the previous three months, matching economists’ forecasts in a Reuters poll. It was the first time since November that inflation gained pace, slowing the recovery in spending power for consumers,” said Tej Parikh, an economist at the Institute of Directors, an employers’ group.

Average earnings, including bonuses, rose an annual 2.4 percent in the three months to June, the Office for National Statistics said on Tuesday, extending a long run of pay rises below their pre-financial crisis levels.

When the BoE raised interest rates this month, it forecast inflation at just above 2 percent in two years’ time. The National Institute for Economic and Social Research, a think tank, said its measure of core inflation, stripping out extreme price moves, fell and looked set to bring inflation down to the Bank of England’s 2 percent target within a year. But economists noted the inflation rise was driven largely by one-off factors, such as a rise in prices of computers games – which are often volatile – and transport fares.

 

Manufacturers raised the prices they charged by 3.1 percent, weaker than June’s 3.3 percent but slightly above the forecast in the Reuters poll.

“With the pressure on spending here to stay, businesses may eventually have to rely on new suppliers as well as new final goods and services to restore margins rather than passing through input prices,” economists at Barclays said in a note.

The ONS data also underscored the weakness in the housing market since the 2016 Brexit vote. London house prices fell by the most since 2009, down by an annual 0.7 percent in June.

In the country as a whole, house prices in June rose by an annual 3.0 percent, the weakest increase since August 2013.

by Sawan Kumar on August 16, 2018

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