UK inflation rate rises for first time since November

The rise marks the first observed in the CPI rate since November 2017.

The CPI rate was driven by a range of factors, including rises in the price of computer games and transport costs.

A fall of 0.4 per cent in the price of clothing and footwear acted to partially offset these upward contributions.

Meanwhile, the Retail Prices Index (RPI) measure of inflation fell to 3.2 per cent.

The Department for Transport uses the RPI figure to set the maximum annual increase for regulated rail fares.

Despite the rise for CPI, wage growth is still outstripping inflation.

On Tuesday, the Office for National Statistics said that average earnings, excluding bonuses, rose by 2.7 per cent for the three months to June.

Liz Cameron, chief executive, Scottish Chambers of Commerce said: “The increase illustrated today in the CPI rate had been predicted by the Bank of England in their latest inflation report, and thus was expected. However, the prospect of inflation rising again will bring little comfort to consumers, especially given the slowing wage growth observed in the latest labour market statistics.

“Our domestic producers will also be concerned in some of the changes observed in the Producer Price Inflation index. Although the headline rate of PPI has fallen from 3.3 per cent to 3.1 per cent for July 2018, input prices for fuels and materials have risen to 10.9 per cent. The annual rate of inflation for input prices is now at the highest level since May 2017, driven particularly by substantial increases in crude oil prices. A weaker pound, alongside increases in fuel prices and imported metals, further drove up the rate of change.

“Both consumers and producers will find little to be positive about in today’s statistics. In particular, producers will be feeling the strain as output prices fall slightly, despite a range of pressures driving up input costs. In this environment, it is critical that both the UK and Scottish governments act to provide certainty in areas such as taxation. Furthermore, the UK Government should continue to negotiate with our partners on the international stage to mitigate the increasing prevalence of higher tariffs, in order to safeguard the manufacturing industry and exports.”

Looking ahead, Howard Archer, chief economic advisor to the EY ITEM ClubOutlook said: “We expect inflation to hover around 2.5% in the near term with upward pressure coming from recent higher oil prices and the weaker pound. There is also an upside risk from higher food prices as a result of the heatwave in the UK and Europe following on from the severe weather in the first quarter.

“The upside risk to inflation from higher oil and commodity prices is evident in annual producer input price inflation rising to 10.9 per cent in July (the highest since May 2017) from 10.3 per cent in June and a low of 3.9 per cent in February. However, the year-on-year rise in producer output prices dipped to 3.1% in July from an 8-month high of 3.3 per cent in June.

“Inflation should resume a modest downward trend towards the end of the year, helped by favourable base effects as the impact on import prices of sterling’s sharp drop after the Brexit referendum continues to unwind (although this may be limited by sterling’s current renewed weakness).

“Meanwhile, domestic inflation pressures are expected to pick up only modestly over the coming months amid no more than middle of the road UK growth. Regular earnings growth is trending up only gradually (and actually relapsed during the second quarter) despite the tight labour market, and we expect this to remain the case. Firms remain keen to limit their total costs in a challenging and uncertain environment. Fragile consumer confidence will likely deter workers from pushing hard for increased pay rises despite recent higher inflation and a tight labour market.

“As a result, we expect consumer price inflation to be down to 2.3% by the end of 2018 and to then get down to 2.0% by mid-2019. We expect Inflation to then hover close to 2% over the second half of 2019.”