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UK inflation unexpectedly rises to 2.7%

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Inflation hit a higher-than-expected 2.7% in April, the highest rate since September 2013, according to the Office for National Statistics (ONS).

The Consumer Price Index rose from 2.3% the previous month.

The main contributor to the uptick in prices was higher air fares, thanks to Easter falling later this year, the ONS said.

Rising prices for clothing, vehicle excise duty and electricity also contributed to the rise.

With the Brexit-hit pound pushing up import costs, prices are expected to continue rising. Last week’s inflation report from the Bank of England forecast inflation to reach 2.8% by the end of the year.

Maike Currie, investment director at Fidelity International, said: “The combination of rising prices and lacklustre wage growth is squeezing real incomes and making life more difficult for consumers.”

The winners and losers

Inflation is a ‘Jekyll and Hyde’ character, as Currie puts it.

While it’s good news for borrowers as it erodes the value of their debts, it’s bad for savers, investors and retirees as it chips away at the value of future interest and dividend payments and erodes the real worth of their original capital.

Interest rates on cash savings accounts remain low, making it difficult for savers to earn a decent return. Not one of the 753 standard savings accounts available in the UK pays more than inflation, according to data firm Moneyfacts.

One alternative is to take more risk by investing in stocks and shares.

Novice investors will have to be comfortable with the ups and downs of stock market investing and be vigilant of fund management charges.

Currie’s advice is to protect yourself before inflation rises further: “Physical assets such as gold, agriculture and property are all good protectors against the wealth-eroding effects of rising prices.

“You can invest in gold via a fund which invests in the shares of gold mining companies, such as the Investec Global Gold Fund or tap into property via the BlackRock Global Property Securities Equity Tracker Fund which benefits from the liquidity offered by real estate equities.”

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