UK inflation as measured by the Consumer Prices Index (CPI) rose unexpectedly in June, to 1.9 per cent, up from May’s 1.5 per cent and the biggest monthly increase since October 2012.
According to the Office for National Statistics (ONS), the rise was mainly due to higher prices in clothing and footwear and food and non-alcoholic drinks, although rising air fares and furniture prices also helped to push the rate up.
Inflation in the UK has largely been declining this year, helping with the Bank of England’s decision to hold off on raising interest rates, but June’s result takes the rate very close to the Bank’s 2 per cent target.
The publication of the data caused Government bond prices to tumble and sterling to rise, as markets grew more confident that the Bank could now raise the rate before the end of the year, particularly since the higher-than-anticipated jump is likely to put pressure on wages, as earnings growth is still lagging behind the rise in prices.
Some analysts are now predicting that a rate rise could come as early as November but others are arguing that the factors pushing the rate higher last month have been ‘one-offs’.
Their argument is bolstered by the report accompanying the data from the ONS, which said that there were signs that good weather last month may have deterred retailers from cutting prices.
Meanwhile, other data released by the ONS showed that factory gate prices rose by 0.2 per cent on a year-on-year basis, the lowest reading since October 2009 and undercutting predictions of a 0.5 per cent rise. In separate news, the ONS revealed that house prices in the UK rose 10.5 per cent in the year to May.
