Inflation edges up on fuel price rise

Added 19th July 2016

Inflation in the United Kingdom edged up to 0.5% year-on-year in June from 0.3% the month before, the Office for National Statistics reported today.

Inflation edges up on fuel price rise

The fractionally ahead of forecasts rise was largely caused by transports costs related to the oil price recovery.

The majority of June passed before the EU referendum therefore the sudden fall in the pound that followed has had a minor influence on the reading and seems likely to be seen much more in the July data.       

“An acceleration in UK inflation to 0.5% year-on-year in June from 0.3% in May gives some potential hint of what the pound’s plunge against the dollar, euro and yen could mean going forward,” said AJ Bell investment director Russ Mould. “The 0.5% increase in the consumer price index exceeded the consensus forecast of 0.4% and took inflation back to the rate last seen in March, even if it remains way below the Bank of England’s 2% target.!

“Ultimately, life begins to the left of the decimal point and the key figure here therefore is still “zero”, although Bank of England Governor Mark Carney make take some solace from what seems to be a slight upward trend in both the headline and “core” CPI readings.” Mould continued. He added that all eyes are now on the next Bank of England meeting on 4 August, when a rate cut and new quantitative easing could be announced.

Viktor Nossek, director of research at WisdomTree Europe warned that we could see a spike in inflation once the lower pound starts hitting home.

“With the pound down more than 10% against the US dollar since Brexit, investors need to prepare themselves for inflation to climb rapidly, and we could see CPI move up sharply over the coming months as the impact of weak sterling feeds through into the real economy,” he said. “Higher energy costs may likely curtain consumer spending for H2 2016, unless the labour market tightens, and pay increases work to absorb it. But amidst Brexit uncertainty, trade and capital flows are expected to remain subdued, undermining the prospects for the UK’s labour market to actually be resilient in that regard.”

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Alex Sebastian

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Alex joined Portfolio Adviser in April 2014 and has been a financial journalist since 2008. He has previously held editorial positions at the Financial Times Group and Euromoney Institutional Investor. Alex is NCTJ qualified and has a degree in economics from the University of Sussex.



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