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British inflation jumps again in May, tightening squeeze on consumers

Inflation is high around world but in Britain there is extra pressure due to fall in sterling

Reuters  |  London 

An employee is seen walking over a mosaic of pound sterling symbols set in the floor of the front hall of the Bank of England in London.  Photo: Reuters
An employee is seen walking over a mosaic of pound sterling symbols set in the floor of the front hall of the Bank of England in London. Photo: Reuters

unexpectedly jumped to its highest level in nearly four years in May, tightening the squeeze on consumers who now face the added worry of political uncertainty after last week's inconclusive

The impact of the fall in the pound since last year's Brexit vote made itself felt as the higher costs of foreign holidays and of imported computer games and equipment helped push up consumer prices by 2.9 per cent year-on-year.

That was its biggest annual increase since June 2013, the Office for National Statistics said and was above the median forecast of 2.7 per cent in a Reuters poll of economists.

It is also faster than the growth in pay for most people who have suffered a squeeze on their incomes almost without break for a decade.

Data due to be released on Wednesday is likely to show basic pay rose by an annual two per cent in the three months to April, according to another Reuters poll.

Prime Minister Theresa May, weakened by the loss of her parliamentary majority in the election, has accepted that voters' patience with austerity is at an end, the Times reported on Tuesday.

Despite the stronger-than-expected consumer price figures, the pound fell slightly after the ONS data, possibly reflecting a slowing of the surge in prices faced by factories which hint at slower ahead for households.

Paul Hollingsworth, an economist with Capital Economics, said he believed the data showed the drop in the pound has fed through into more quickly than expected.

"While we think that CPI will peak at a little above three per cent before the end of this year, it is likely to drop back fairly quickly in 2018," he said.

The ONS said one of the main drivers for in May was the increased cost of package holidays abroad for British tourists who have to pay more for their euros and dollars.

Another big push on prices came from computer games and equipment, which are typically imported and therefore reflect the diminished buying power of sterling since the Brexit vote.

has picked up speed broadly around the world but in Britain there is extra pressure from the fall in sterling, contributing to a sharp slowdown in British economic growth since the start of this year.

Credit card firm Visa said on Monday it saw the first annual fall in spending by consumers in nearly four years in May.

That was before last week's shock result that has raised questions about how May will advance her plans to take Britain out of the European Union, and push other legislation.

A survey of executives published on Monday showed business confidence plunging after the


Despite the sharp rise in prices, the is widely expected to keep interest rates at their record low of 0.25 per cent when it announces its latest monetary policy decision on Thursday.

The has said it will tolerate above its target of two per cent because so far there has been no knock-on effect on pay which could generate a longer-lasting problem.

But the had previously said it only expected to reach the kind of levels it has now hit at the end of this year.

Some economists have said Britain's political turmoil is likely to make the more cautious about considering a rate hike and could even lead it to revive its massive bond-buying programme if the weakens further.

The was also likely to take comfort from the data which showed inflationary pressures might be easing.

Input prices for factories fell by 1.3 per cent in month-on-month terms in May, taking the yearly rate of price growth down to 11.6 per cent from a downwardly revised 15.6 per cent in April, its slowest annual growth rate since last September.

Growth in prices charged by factories held steady at an annual 3.6 per cent, in line with the Reuters poll.