UK Inflation Jumps to 1.9%

Uk inflation grew at a much faster rate than expected in May rising from 1.5% to 1.9%, largely due to an increase in clothing, energy, food and alchohol prices

Emma Wall 15 July, 2014 | 10:44AM
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UK inflation jumped higher than expected in June pumped up by higher clothing and footwear prices, data revealed Tuesday. Consumer prices rose 1.9% in June from last year, the Office for National Statistics said, up from 1.5% the previous month. The government target rate of inflation is 2%.

Inflation was forecast to rise moderately to 1.6%, and the jump may mean that plans to raise interest rates are brought forward.

“Today’s unexpected rise will raise speculation that the first interest rate rise could be round the corner,” said Ben Brettell Hargreaves Lansdown Senior Economist.

“However, it’s important to look at the overall trend rather than one month’s number in isolation, as the monthly figures can be volatile, influenced by one-off factors.”

Core inflation that excludes energy, food, alcoholic beverages and tobacco, picked up to 2% from 1.6%. This will be doubly felt by British households as it is essential spending that cannot be avoided.

The largest upward pressure came from clothing, which usually experience a price cut in June as summer sales start. Brettell speculated that the good weather could have persuaded retailers not to cut prices.

Other data from ONS showed that output price inflation slowed to 0.2% in June from 0.5% in May. The rate of increase was expected to remain at 0.5%. Input prices were down 4.4% in June from last year, following a 3.8% drop.

In May, house price inflation accelerated to 10.5% from 9.9% in April, with London and the South East experiencing the greatest rise.

Jonathan Samuels, chief executive of Dragonfly Property Finance said things had to calm down in the capital.

“Prices at 33.7% higher than the pre-financial crisis peak is mind-boggling,” he said. "Remove London and the South East and annual house price inflation of 6.4% is much more stable and sustainable. These are words that London doesn't appear to recognise. With interest rate rises to come and mortgage advances more conservative, things may well come under control yet.”

 

 

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Emma Wall  is former Senior International Editor for Morningstar