UK inflation spikes to hit four year high

Last month saw UK inflation rise to its highest rate since September 2013, according to official figures.

Data from the Office for National Statistics shows that inflation now stands at 2.7 per cent - up from 2.3 per cent in March - and above the Bank of England’s 2 per cent target.

Higher air fares were the main reason, which rose because of the later date of Easter this year compared with 2016.

Rising prices for clothing, vehicle excise duty and electricity also played a part, but a fall in the price of petrol and diesel slightly offset this.

Last week, the Bank of England warned that the Consumer Prices Index (CPI) would peak at 3% this year because of the fall in sterling after the Brexit vote.

The ONS said the cost of air travel went up by 18.6 per cent from the month before, with Easter falling on 16 April this year compared with 27 March last year.

The price of clothes jumped to the highest level for six years, with a rise of 1.1 per cent between March and April.

The Retail Prices Index (RPI), a separate measure of inflation which includes council tax and mortgage interest payments, reached 3.5 per cent last month, up from 3.1 per cent in March.

Stephen Boyle, chief economist with Royal Bank of Scotland, said: “The bulk of the rise in inflation is down to the deprecation of sterling. The pound stands 16 per cent below its August 2015 level and 10 per cent below its value on 23rd June last year, the day of the referendum on membership of the EU. A weaker pound means that the price we pay for imports rises.

“And there’s more to come. The prices that producers pay for their inputs – fuel, materials etc. – have increased by 16.6 per cent in the last year, with more costly imports causing much of that rise. Higher input costs will find their way, at least in part, into higher prices for consumers. That’s why the Bank of England last week forecast that inflation would rise further, to 2.8 per cent by this year’s end, a target that today’s figure suggest could be exceeded.

“Rising inflation is the major economic story of 2017. While it is by no means a return to the bad old days of the 1970s, when inflation reached 27 per cent, or even the 1990s, when it averaged over 3 per cent, higher inflation matters. Wages are growing by around 2 per cent year-on-year, which means that 2.7 per cent inflation is eroding our spending power. As a result, consumers’ spending will be under pressure, especially for discretionary items like leisure. Weaker consumption means slower growth.

“However, there is an upside to the weaker pound and its inflationary impact: our exports become more competitive in overseas markets. That boost, along with the pick-up in growth in Europe will mean stronger export performance in 2017, partly offsetting weaker domestic demand.

“Despite inflation now clearly having overshot the 2 per cent target set for it by Parliament, the Bank of England will not raise interest rates in response any time soon. It will be content to regard sterling-induced inflation as being a temporary phenomenon as long as our expectations of future inflation remain consistent with the 2 per cent target and wage growth does not rise unduly. Both of these conditions are being satisfied at present.”