Business

Fuel and energy prices set to push inflation to four-month high

Hikes in fuel prices are likely to send UK inflation to its highest level in four months when the latest figures are released

RECENT hikes in energy costs and petrol prices are expected to send UK inflation to its highest level in four months when official figures are disclosed on Wednesday.

A consensus of economists expect the Office for National Statistics' (ONS) June Consumer Price Index (CPI) to come in at 2.6 per cent, up from 2.4 per cent in both May and April.

The last time CPI was higher was in February, when inflation was 2.7 per cent.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, expects a stronger reading to match February's figures.

"The contribution to inflation from motor fuel, electricity and natural gas prices likely leapt."

He noted that 10 of the 12 largest energy suppliers - including British Gas, Scottish Power, EDF Energy - have announced price rises which will kick in over the summer.

"In addition, BRC (British Retail Consortium) data suggest that core goods inflation rose."

Mr Tombs was pointing to figures which showed that BRC's non-food shop price index jumped by 0.9 per cent month on month, marking the biggest June increase since the BRC's records began in 2006.

That increase was due to higher prices for clothing and recreational goods.

A further rise in CPI is likely to strengthen the case for a Bank of England interest rate hike next month, though concerns that prices are rising faster than wages could see rate-setters have second thoughts.

The latest data from the ONS show that average earnings increased by 2.5 per cent in the year to May, up just slightly from 2.4 per cent the previous month.

Ed Monk, an associate director for personal investing at Fidelity International, said: "If inflation does jump back up after this weakening in pay growth, then it adds to the conundrum for the Bank of England's Monetary Policy Committee who are desperate to deliver a rate hike in August's MPC meeting.

"Higher inflation would support that position but an absence of sustained real wage growth as well as ongoing fears about the impact that Brexit will have on the UK economy means that we could see the 'unreliable boyfriend' make an appearance again if Mark Carney and the central bank is forced to make another U-turn come August."

The EY Item Club earlier this week said it expects a steady slide in CPI over the remainder of the year.

"The steady downward progression in Consumer Price Index (CPI) inflation observed earlier this year looks likely to reverse course, at least temporarily, over the next few months," it said.

The think-tank said it expects CPI to rise back up to 2.7 per cent in the near term before "softening" to end 2018 at 2.3 per cent.

That is up from its 2 per cent year-end forecast released in the spring.

Enjoy reading the Irish News?

Subscribe from just £1 for the first month to get full access

Today's horoscope

Horoscope


See a different horoscope: