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Higher petrol prices and air fares drive inflation up to 0.5%

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UK consumer price inflation rose to 0.5% in June up from 0.3% in May, official figures reveal.

The June rate was slightly higher than expected and just above the position seen for most of 2016, but is still some way off the Bank of England’s official target of 2%.

Rises in petrol prices and air fares were the main drivers for the uptick, according to the Office for National Statistics (ONS).

These upward pressures were partially offset by falls in the price of furniture and furnishings and accommodation services.

However, the data was gathered before the EU referendum, so does not include the effect of sterling’s dramatic fall since the vote, which is set to push up inflation.

Ben Brettell, senior economist at Hargreaves Lansdown, said: “Sterling’s weakness means higher import prices, and this is expected to feed through to significantly higher inflation figures in the coming months. Forecasts suggest it could reach 3-4%.

“However, this will be a temporary factor – assuming sterling remains weak, the effect will fall out of the year-on-year calculation in the second half of next year.”

He added: “Underlying inflationary pressure is hard to see, with Brexit-related economic uncertainty likely to dampen both consumer spending and wage growth in the short term. As such the Bank of England is almost certain to ignore what should be a temporary spike in inflation when it sets monetary policy.

“Most members of the MPC believe interest rates will be cut in August, despite the hawkish Marin Weale indicating yesterday he would not back a reduction at next month’s meeting.”

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