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Blow to households as inflation hits six-month high

Joanna Faith
Written By:
Joanna Faith

Consumer prices unexpectedly jumped to a six-month high in August dealing a blow to squeezed British households.

The Consumer Prices Index (CPI) rose to 2.7% up from 2.5% in July, according to figures from the Office for National Statistics (ONS).

Markets and economists had expected a small drop to 2.4%. But increased costs for recreational and cultural goods and services, transport services and clothing pushed the rate up for the second consecutive month.

Theatre tickets, transport and autumn clothing were the biggest upward contributors.

The latest figures mean that wage growth including bonuses, which is currently at 2.6%, has fallen behind inflation meaning Brits are once again getting progressively poorer in real terms.

Emma-Lou Montgomery, associate director for personal investing at Fidelity International, called the inflation figures “a body blow to UK households.”

Brexit uncertainty

Experts believe Brexit uncertainty could push inflation up further.

“Trade friction could see a material decline in Sterling, raising inflation significantly above current levels and leading to higher wage demands at a time of limited political strength,” said Nick Dixon, investment director at Aegon.

“Such wage pressure could exacerbate inflation and add pressure on the Bank of England to raise interest rates faster and higher than markets anticipate.”

Ben Brettell, senior economist at Hargeaves Lansdown, said: “The numbers reinforce expectations that policymakers will gently lift interest rates over the next couple of years.

“The figures won’t come as welcome news to the Bank of England though – they’ll be desperate to leave policy unchanged until we get some clarity over Brexit, and won’t want to be forced into a rate rise by accelerating prices.

“A rise to 1% is tentatively priced in for around May next year, though clearly a disorderly Brexit would force a dramatic rethink.”