United Kingdom inflation rises more than expected but pound pulls back from highs

Posted May 20, 2017

Separately, Wednesday's ONS data provided some relief for employers who have said they are anxious that migrant workers are being discouraged from coming to Britain because of the fall in the value of the pound since the Brexit vote and uncertainty about their future status in the country.

The Consumer Price Index (CPI) which measures inflation recorded a 0.02 percent decline in April, the National Bureau of Statistics, NBS, said on Tuesday.

Instead, the Bank of England has softened its previous forecasts for a rise in unemployment which it expects to stand at 4.7% this year, still above the level which it considers inflationary.

Wages apart, the jobs market continued to expand with the number of people in work rising by 122,000 in the three months to March, taking the employment rate to a new record high of 74.8 per cent. Dukascopy SA is not responsible for any losses arising from any investment based on any recommendation, forecast or other information herein contained.

An increase in the minimum support price the government pays farmers for their produce and implementation of the goods and services tax (GST) in July may cause a small uptick in the inflation rate, said Aditi Nayar, principal economist at rating company ICRA Ltd.

However, as growth and inflation pick up, a move towards tightening the policy bias with a cumulative 50 bps repo rate hike in 2018, starting next April, is expected.

Clothing and electricity prices also rose at a faster rate during April while changes to certain vehicle taxes also helped to push up the rate of inflation.

The Consumer Price Index including owner occupiers' housing costs (CPIH) hit its highest level since June 2013 at 2.6% in April, up from 2.3% in March. Britain's economy was barely ruffled past year by the shock vote to leave the EU.

"As inflation begins to fall back next year as the upward pressures from the drop in the pound start to fade, we think real wages will begin to rise again", said Paul Hollingsworth from Capital Economics.

April CPI's 4.4% on-year rise compared to March's 5.1% increase, according to the department.

Last week, Bank of England (BoE) Governor Mark Carney warned 2017 will be challenging for consumers, with inflation now nearly certain to overtake wage growth.

Higher inflation tends to put pressure on the Bank to raise interest rates in order to keep it under control, though this is seen as unlikely at the moment given the uncertainty facing the economy amid the Brexit process. The latest figures on earnings growth are due out later this week.