UK inflation rise makes it clear: the cost of living crisis has not gone away
For anyone hoping the Bank of England will pick up the pace of interest rate cuts – including Rachel Reeves – there was little comfort in the latest inflation data.The consumer prices index increased at a higher than expected rate of 3.6% in June, the Office for National Statistics (ONS) revealed on Wednesday.That remains in line with the Bank of England’s expectation of an inflation “hump” over the summer; but the upward pressure is not just confined to the regulated prices, such as transport fares and utility bills, that policymakers knew would rise.Motor fuels are the main factor behind the upward shift in CPI from 3.
4% in May, according to the ONS.The price of a litre of petrol is not rising – it fell by 0.5p between May and June.But it was plunging this time last year, so the smaller monthly decline puts upward pressure on inflation.There were a number of other drivers, too, including a 7.
9% jump in air fares between May and June.The ONS has said the price of a flight always tends to increase in June as the summer season starts, but this was the fastest such increase since 2018.Food prices have also continued to be strong, rising at an annual rate of 4.5% – the fastest since February last year.The ONS cites price rises for several foods, including cakes and cheddar.
The costs of furniture and household goods made their largest contribution to inflation since December 2023.In other words, the jump in inflation does not seem to be a one-off quirk but reflects price pressures across a range of goods and services.The core rate, excluding volatile fuel, food, cigarettes and alcohol, rose to 3.7% in June, from 3.5% in May.
Given the Bank was predicting that headline inflation would peak at 3,7%, this reading seems unlikely to blow an August rate cut off course, with markets still putting the probability of a reduction at that meeting at 83%,However, the members of the monetary policy committee who would like to pick up the pace of cuts may struggle to win others over without more signs of weakness,As Ian Stewart, the chief economist at Deloitte, put it: “Inflation is expected to fall back towards the end of this year, but in the meantime the pressure on the Bank of England will be to keep interest rates higher for longer,”Continued high inflation is unlikely to do much for consumers’ mood either, underlining the sense that the cost of living crisis has never quite gone away.
Sign up to Business TodayGet set for the working day – we'll point you to all the business news and analysis you need every morningafter newsletter promotionThe independent MPC member Catherine Mann suggested in an interview on Tuesday that the sheer unpredictability of prices could be contributing to caution about spending,“The prices of things have changed so much and are variable so that you don’t know exactly how much you are going to need to get you to the end of the month,” she told the Business in Wales website,“People are keeping a little bit of a rainy-day fund or a little bit of a savings buffer,For example, they’re putting off taking that vacation or that holiday until they can get a sense of what their finances are,”Strong real wage growth in recent months may have helped – something Reeves highlighted in her Mansion House speech on Tuesday.
But households are unlikely to be feeling particularly upbeat if, as Mann says, they are not sure where the next painful price rise is coming from.
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Musk’s giant Tesla factory casts shadow on lives in a quiet corner of Germany
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