Figures published by the Organisation for Economic Co-operation and Development (OECD) have suggested that the UK has the ‘highest rate’ of inflation amongst top economies around the world.
Rising food and fuel costs have helped to increase prices in the UK, with inflation rising at a faster rate than inflation in other G7 countries, including the US, Germany, France and Japan.
The latest figures from the OECD show that the UK’s rate of inflation reached 2.9% in August, up from 2.6% in July. Experts in the UK have warned that inflation is outpacing wage growth.
Of the 35 developed OECD nations analysed, the UK’s inflation rate is only marginally lower than the rates of inflation in Turkey, Mexico, Latvia and Estonia.
Since the Brexit vote, sterling has steadily depreciated, helping to increase the costs of imports, energy and services.
Meanwhile, inflation across all OECD nations remained stable at 1.8%.
A survey carried out by the BBC has revealed that economists in the UK do not expect an interest rate rise until ‘at least 2019’.
Economists believe that the Bank of England’s Monetary Policy Committee (MPC) will not want to raise rates whilst Brexit negotiations are ongoing.
The base rate currently stands at 0.25%.
Half of the economists surveyed believe that growth in wages will outpace inflation during the first few months of 2019, the BBC found. In July, the rate of inflation stood at 2.6% – above the Bank of England’s 2% target.
Addressing the issue, Stuart Green, UK Chief Economist at Santander, said: ‘We believe that policymakers will be reluctant to tighten monetary policy until greater clarity emerges around the UK’s post-EU trading framework, and our expectation of declining inflation through 2018 should also reduce the pressure for an interest rate rise.’
However, Michael Saunders, a member of the MPC, recently stated that a ‘modest’ rise in interest rates is needed to ‘curb inflation’. Mr Saunders said that a rise would also ‘help ensure a sustainable return of inflation to target over time’.
The UK’s rate of inflation as measured by the Consumer Prices Index (CPI) fell unexpectedly to 2.6% in June, down from 2.9% in May, figures published by the Office for National Statistics (ONS) have revealed.
The latest rate represents the first fall in inflation since October 2016.
Lower petrol and diesel prices, alongside a decline in prices for recreational and cultural goods, helped to drive down inflation, the ONS stated.
Commenting on the data, Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC), said: ‘While the fall in inflation in June will surprise many, consumer price growth is likely to resume its upward trend in the coming months, with the elevated cost of imported raw materials still filtering through supply chains.
‘Inflation remains a major risk to the UK’s growth prospects this year, with rising cost pressures for both consumers and businesses likely to dampen overall economic activity.’
Experts have also warned that inflation continues to outstrip wage growth.
Frances O’Grady, General Secretary of the Trades Union Congress (TUC), stated: ‘The government must stop this cost of living squeeze. Many working people are caught in a vice as rising prices crush their pay.’
The British Chambers of Commerce (BCC) has called for a rise in the National Living Wage (NLW) to help balance inflationary pressures for low paid workers.
Responding to a call made by the Low Pay Commission (LPC) for comments in regards to minimum wage levels, the BCC recommended a 2.7% increase in the NLW rate, to ‘compensate for the rise in inflation’.
The Consumer Prices Index (CPI) rate of inflation currently stands at 2.9% – its highest level in almost four years.
However, the BCC also stated that many businesses are ‘struggling to absorb the rising cost of employment’, citing pressures from existing policies, such as the Apprenticeship Levy and pensions auto-enrolment. The business group said that any amendment to the NLW rate should be ‘cautious’, in order to prevent further wage bill increases.
Jane Gratton, Head of Business Environment and Skills Policy at the BCC, said: ‘The BCC has recommended an increase in the NLW to help low paid workers manage inflationary pressures which are eroding their spending power.
‘Setting the NLW must be done cautiously, comprehensively taking into account economic circumstances so that people are not priced out of jobs.’
Household incomes in the UK are falling at their fastest rate since 2011, data published by the Office for National Statistics (ONS) has suggested.
Real household disposable income per head fell by 2.0% in the first quarter of 2017 when compared to the same quarter in 2016. This represents the fastest decrease since 2011.
The main reason for the decline was the rise in inflation, the ONS said.
Meanwhile, a separate report published by the Joseph Rowntree Foundation revealed that working families are facing ‘bigger shortfalls in their household budgets’ despite tax cuts and an increase in the National Living Wage (NLW).
The Foundation suggests that this is due to rising living costs, and wage increases being reduced.
Campbell Robb, Chief Executive of the Joseph Rowntree Foundation, commented: ‘Working families are facing bigger holes in their budgets worth hundreds of pounds, despite a higher NLW and tax cuts.
‘It means millions of families are facing a struggle to make ends meet as the cost of getting by in modern Britain rises ever higher.
‘With the Bank of England forecasting inflation will increase even higher this year, families are facing no respite. We need the government to take action and ensure living standards do not fall backwards.’
The UK’s inflation rate as measured by the Consumer Prices Index (CPI) rose to 2.9% in May, up from 2.7% in April, data published by the Office for National Statistics (ONS) has revealed.
The rising costs of package holidays and imported computer games helped to push the rate to its current level. The ONS found that food and clothing prices also rose, but fuel prices fell.
Economists had previously predicted that the rate of inflation would remain at 2.7% in May.
Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC), commented: ‘Higher inflation is a key business concern as it squeezes margins and weakens their ability to invest, particularly during this time of heightened political uncertainty.
‘A key focus of the new government must therefore be on easing the current pressure on firms’ cost base by tackling the burden of upfront costs and taxes associated with doing business in the UK.’
Meanwhile, the Trades Union Congress (TUC) expressed concerns that the UK’s rising inflation rate ‘continues to far outstrip wage growth’.
Frances O’Grady, General Secretary of the TUC, warned: ‘The election showed that working people are struggling. The new government must stop the real wage slide. Ministers must focus on delivering better-paid jobs all around the UK.’
Retail sales fell by 4.4% last month, according to the latest figures from the British Retail Consortium (BRC).
The May figures represent the biggest drop in more than four years, as consumers feel the effects of rising inflation and weak wage growth.
Online sales of non-food items also grew at the slowest rate since records first began in 2012.
Meanwhile, a separate survey conducted by Barclaycard has suggested that consumer confidence reached a new low last month, with 53% of consumers reporting that they feel confident about their finances, compared with 70% in March.
According to the survey, growth in consumer spending fell to 2.8% in May, with spending on households goods and clothing falling by 2.9% when compared to the previous year, although spending on cinemas and eating out rose by 11.5% and 11.7% respectively.