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UK Inflation Rate Hits Highest Level Since September 2013

18 May 2017 10:05:40

Official inflation figures for the UK published today have found that inflation has hit its highest rate since September 2013, highlighting the increased costs manufacturers are facing.

Inflation currently stands at 2.7%, up from 2.3% in March, and significantly above the Bank of England’s 2% target. The report suggest that the increased inflation was caused by higher air fares, increased clothing costs, vehicle excise duty and electricity costs.

On the other hand, the falling costs of petrol and diesel have been credited with offsetting some of the inflationary pressure. It comes after last week’s warning from the Bank of England that the Consumer Prices Index (CPI) would peak at 3% for the year, thanks to the fall in sterling after the Brexit vote.

On the subject of higher air travel, the Office for National Statistics (ONS) said that air travel went up by an astonishing 18.6% from the month before, thanks to Easter falling on the 16th of April rather than the 27th of March, as it was in 2016.

The Retail Prices Index (RPI), which is a separate measure of inflation which includes things like council tax and mortgage interest payments, reached 3.5% last month, up from 3.1% in March.

That’s bad news for consumers, and it seems like the trouble might not end soon. Though manufacturing companies have benefitted from higher orders from abroad (owing to a weak sterling), the costs of buying materials from abroad has risen accordingly. Early indications from manufacturers like jic & sae suppliers have been that though these costs are being kept in line, the prospect of a hard Brexit would mean increased costs for customers, driving inflation up further.

Suren Thiru, head of economics at the British Chambers of Commerce, said: "Businesses continue to report that the substantial increases in the cost of raw materials and other overheads over the past year are still filtering through the supply chain, and are therefore likely to lift consumer prices higher in the coming months

"However, it remains probable that the current period of above target inflation is transitory in nature, with little evidence that higher price growth is becoming entrenched in higher pay growth.

"This should give the Bank of England sufficient scope to keep interest rates on hold for some time yet, despite their recent warning."

Meanwhile, Chris Williamson, chief business economist at analysts IHS Markit, said: "The timing of Easter looks to have played an important role in pushing inflation higher in year-on-year terms.

"But sterling's depreciation since the referendum last June is also clearly a significant factor, lifting prices for imports and likely to pile further upward pressure on consumer prices in coming months. There are nevertheless signs that inflation could perhaps rise less than many had been fearing.

"Survey data are already showing companies' costs are rising at a slower rate than earlier in the year, and recent weeks have seen some easing in global commodity prices, notably oil."

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