Britain's inflation,
fueled by Brexit and oil, drives higher ahead of
election
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[May 16, 2017]
By Andy Bruce and David Milliken
LONDON
(Reuters) - British inflation hit its highest level since September 2013
last month, building on its sharp rise since the vote to leave the
European Union and tightening the squeeze on living costs for households
ahead of a national election on June 8.
Consumer prices rose in April by an annual 2.7 percent, the Office for
National Statistics said on Tuesday, and economists said inflation would
climb further as the fall in the value of the pound since the Brexit
vote pushes up the cost of imports.
Economists taking part in a Reuters poll had predicted a rise of 2.6
percent.
Much of the rise in April was due to the late timing of the Easter
holiday which pushed up air fares. But the combination of sterling's
fall and higher oil prices are pushing up inflation across the board for
consumers and businesses.
Last week Bank of England Governor Mark Carney warned this year would be
challenging for consumers, saying that wages are about to fall in real,
inflation-adjusted terms.
The head of Britain's biggest trade union group said Tuesday's inflation
data meant living standards should be front and center of the election
campaign.
"The last thing Britain needs is another real wage slump. But rising
prices are hammering pay packets," Trades Union Congress General
Secretary Frances O’Grady said.
"Working people are still 20 pounds a week worse off, on average, than
they were before the (financial) crash. That’s why living standards must
be a key battleground at this election."
Prime Minister Theresa May is widely expected to defeat the opposition
Labour Party which is calling for an end to strict limits on public
sector pay growth and higher minimum wage.
Despite the inflation rise, however, the economy is far from overheating
-- meaning that all but one of the BoE's eight policymakers voted last
week to keep interest rates on hold.
AIRFARES SWING IN EASTER
The latest inflation figures were boosted most of all by rising airfares
during the Easter holidays which last year took place in March. Rising
clothing prices, higher car tax and electricity also pushed up consumer
prices.
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A shopper pushes a trolley in a supermarket in London, Britain April
11, 2017. REUTERS/Neil Hall
One-off effects aside, some see more inflation ahead.
"We remain convinced that the market is underestimating the further
upside for inflation from here," Scotiabank analyst Alan Clarke said,
adding that he expected utility bills, food costs and the weak pound to
put more pressure on prices in future.
Sterling briefly spiked to its highest in almost a week against the
dollar before falling back.
Many economists say the impact of the fall in sterling on consumer
prices will be felt more strongly in the coming months, and the central
bank expects inflation to peak at nearly 3 percent by the end of this
year.
Capital Economics said it expected inflation to exceed 3 percent before
the end of the year but saw little sign of domestic inflation pressures
becoming entrenched.
Excluding oil prices and other volatile components such as food, core
consumer price inflation rose to 2.4 percent, the strongest rate since
March 2013 and above economists' expectations for it to rise to 2.2
percent.
Services prices - which the BoE uses as a guide to domestic inflation
pressures - rose by 3.0 percent, the biggest jump since September 2013,
pushed up by the higher air fares.
Factory output prices - a guide to future consumer price pressures -
increased 3.6 percent, unchanged from the previous month and above
forecasts of a 3.4 percent annual increase in the Reuters poll.
Prices paid by factories for materials and energy rose at the weakest
annual pace since November, up 16.6 percent.
The ONS said house prices in March rose at their weakest rate since
October 2013, up 4.1 percent on the year. Prices in London alone grew
1.5 percent, the weakest since March 2012.
(Editing by Jeremy Gaunt)
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