Britain's surprise jump in inflation

Analysts had forecasted a lower rise in Britain's consumer price index.

The annual rate of consumer price inflation (CPI) jumped to 1.9% in June, the highest level in five months, from 1.5% in May. That surprised analysts, most of whom were expecting a reading of 1.6%. The Bank of England's target rate is 2%.

Meanwhile, the unemployment rate slid to 6.5% of the workforce, the lowest since December 2008. A year ago, it was 7.8%.

The employment rate, the proportionof those aged 16 to 64 in work, has climbed to a record of 73.1% in thethree months to May.

However,average annual earnings growthslipped to just 0.7%, continuingthe divergence between employmentand pay seen in recent months. The pound rose to a six-year high against the dollar as a rise in interest rates looked more likely.

What the commentators said

The 12% rise in trade-weighted sterling over the past year, which is still working its way through the system,and subdued producer price inflation, also suggest that inflation should fall back soon.

Yet, what if shops don't cut prices, wondered Simon Smith of Fxpro.com. If they are discounting less and not as early as last year, that could mean they are enjoying more pricing power as the economy strengthens.

And the rise in inflation last month was broad based: of the 12 main categories that make up the CPI, only one showed falling prices.

"The case for higher interest rates is building," said Markit's Chris Williamson. There is no sign of the economy losing momentum, unemployment is "plummeting", the housing market is booming and inflation is almost back to target.

In any case the Bank of England is supposed to be targeting inflation in two years' time, not the current rate. It should hike rates in November. And "better that rates rise sooner", added James Moore inThe Independent, "and more gentlyover a long period, than increasesharply as a result of a panic if [this week's inflation data do] signal something nasty".

Recommended

What makes up the price of a litre of petrol?
Budget

What makes up the price of a litre of petrol?

The cost of filling the average car with fuel is falling. Here’s what makes up the price of a litre of petrol.
1 Jun 2023
Will energy prices fall 2023?
Personal finance

Will energy prices fall 2023?

Falls in wholesale energy prices have fed through into a lower energy price cap, but will that continue?
25 May 2023
UK inflation slides to 8.7% - what does it mean for your money?
Economy

UK inflation slides to 8.7% - what does it mean for your money?

Inflation has dropped below 10% for the first time in months, but with food prices at a 45-year high, is this good news and what does it mean for your…
24 May 2023
What is inflation and how will it affect you?
Inflation

What is inflation and how will it affect you?

ONS is set to announce the latest inflation figures this week with experts suggesting we may finally see it slide. We look at what lower inflation mea…
23 May 2023

Most Popular

Best savings accounts – June 2023
Savings

Best savings accounts – June 2023

Interest rates have been creeping up - we look at the best savings accounts on the market right now.
1 Jun 2023
Savings inertia - why we should all be obsessed with interest rates and savings accounts right now, says Kalpana Fitzpatrick
Savings

Savings inertia - why we should all be obsessed with interest rates and savings accounts right now, says Kalpana Fitzpatrick

Are savers still missing out on hundreds of pounds by not moving their cash for better interest rates?
30 May 2023
One day left for households to claim the £200 Alternative Fuels Payment to help with heating bills
Energy

One day left for households to claim the £200 Alternative Fuels Payment to help with heating bills

Households could be due a £200 payment if they heat their homes using alternative fuel sources and aren’t connected to the mains gas grid - but time i…
30 May 2023