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UK inflation rises to 2.7% UK inflation rises to 2.7%
(about 5 hours later)
UK inflation rose more sharply than expected to 2.7% in May, driven higher by the cost of air travel, fuel and clothing. UK inflation rose by a sharper-than-expected 2.7% in May, driven higher by the cost of air travel, fuel and clothing.
It followed a seven-month low of 2.4% in April according to data from the Office for National Statistics, and put more pressure on household finances. The increase followed a seven-month low of 2.4% in April, according to data from the Office for National Statistics, and puts more pressure on household finances.
Economists had forecast a smaller rise in the consumer price index (CPI) to 2.6%, with annual inflation running persistently above the Bank of England's 2% target. Bank policymakers have made it clear that they will take a flexible approach to inflation targeting if the broader economic picture requires it, paving the way for more quantitative easing – pumping cash into the economy by acquiring sovereign debt from financial institutions – despite above-target inflation. Air fares increased by 22% between April and May, compared with 1.4% over the same period in 2012. The increase was largely related to the different timing of Easter – when prices rise – this year. Petrol and diesel prices both fell, but by less than a year ago, while clothing and footwear prices rose by 1.2%.
Economists had forecast a smaller rise in the consumer price index (CPI) to 2.6%. Annual inflation has been running persistently above the Bank of England's 2% target for more than three years.
Bank policymakers have made it clear that they will take a flexible approach to inflation targeting if the broader economic picture requires it, potentially paving the way for more quantitative easing – pumping cash into the economy by acquiring sovereign debt from financial institutions – despite above-target inflation.
Chris Williamson, chief economist at Markit, said the May inflation data served as a reminder that weak consumer spending was holding back growth. "The ongoing erosion of spending power from rising prices will continue to act as a brake on economic recovery," he said.Chris Williamson, chief economist at Markit, said the May inflation data served as a reminder that weak consumer spending was holding back growth. "The ongoing erosion of spending power from rising prices will continue to act as a brake on economic recovery," he said.
Inflation continues to outpace pay growth, which was just 0.9% excluding bonuses in the three months to April. With bonuses included, it was 1.3%. "Real pay has been falling continually since late 2009, which has been one of the factors causing the economic recovery to have been disappointingly weak," Williamson added.Inflation continues to outpace pay growth, which was just 0.9% excluding bonuses in the three months to April. With bonuses included, it was 1.3%. "Real pay has been falling continually since late 2009, which has been one of the factors causing the economic recovery to have been disappointingly weak," Williamson added.
Air fares increased by 22% between April and May, compared with 1.4% over the same period in 2012. Petrol and diesel prices both fell, but by less than a year ago, while clothing and footwear prices rose by 1.2% compared with a 0.1% fall in 2012.
Howard Archer, chief UK economist at IHS Global Insight, said CPI inflation was likely to rise further in the coming months, peaking at just above 3% in the summer.Howard Archer, chief UK economist at IHS Global Insight, said CPI inflation was likely to rise further in the coming months, peaking at just above 3% in the summer.
CPIH, the new measure of consumer price inflation which includes owner-occupier costs, rose to 2.5% from 2.2% in April.CPIH, the new measure of consumer price inflation which includes owner-occupier costs, rose to 2.5% from 2.2% in April.
A spokesman for the Treasury said: "Inflation is down by almost a half from its peak of 5.2% [in September 2011]. At the same time, to help families with the cost of living, the government has: increased the tax-free personal allowance to £10,000, which will take 2.7 million people out of income tax altogether and save a typical taxpayer over £700; and frozen fuel duty which has kept petrol prices 13p per litre lower than they would otherwise have been."A spokesman for the Treasury said: "Inflation is down by almost a half from its peak of 5.2% [in September 2011]. At the same time, to help families with the cost of living, the government has: increased the tax-free personal allowance to £10,000, which will take 2.7 million people out of income tax altogether and save a typical taxpayer over £700; and frozen fuel duty which has kept petrol prices 13p per litre lower than they would otherwise have been."