Shock as inflation jumps to six-month high

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Inflation jumped unexpectedly to 2.7% in August, its highest level in six months, shocking economists that had expected a drop.

Summer season transport prices contributed most heavily to the hike, as services rose 4.6% last month, driven by a 13.5% rise in air ticket prices and a 17.2% jump in sea fares, including international ferry routes.

Motorists also faced higher fuel costs last month, with petrol up by 1.4p per litre on the month to 128.6p per litre. Diesel also rose by 1.2p to 132.8p per litre.

But prices for electricity, gas and other fuels were flat month-on-month.

Clothing also had a major hand in August’s inflation jump, rising 3.3% month-on-month, as shoppers hit the high street for autumn fashions.

According to figures from the Office for National Statistics (ONS), higher priced theatre tickets also played a major part in upping inflation.

Shoppers also paid more for groceries in the month, with food prices rising 0.3% month-on-month and 2.1% year-on-year.

Fish, vegetables, sugars and confectionery had the biggest upward contribution.

ONS head of inflation Mike Hardie said: “Consumers paid more for theatre shows, sea fares and new season autumn clothing last month.

Shoppers face more expense in 2017, market analyst Loraine Hudson says
Image: Shoppers paid more more for groceries in August as food prices rose 0.3% month-on-month

“However, mobile phone charges, and furniture and household goods had a downward effect on inflation.”

Telephone equipment and services, which includes mobile phone charges, rose just 0.4% on August, compared to a 1.7% jump during the same period last year.

Price rises for household goods and furniture slowed, rising just 1.2% compared to a 1.8% jump a year earlier.

Mr Hardie said: “UK house prices continued to grow but at their lowest annual rate for five years, driven again by a fall in London. The housing market saw strong growth in the North West, South West and West Midlands.”

Rather than an inflationary rise, markets and economists had been expecting a small drop in inflation from 2.5% in July to 2.4%.

The pound jumped on the news, rising 0.4% against the dollar to $1.32 and up 0.1% against the euro to €1.12, the consensus being that an interest rate rise would not be an immediate consideration for the Bank of England as it looks to foster stability as the UK approaches Brexit in March 2019.

The Bank raised the interest rate to 0.75% in August its highest level in nearly a decade.

Ben Brettell, senior economist at Hargreaves Lansdown, said: “Sterling gained sharply, reaching an eight-week high against the dollar, as traders adjusted their interest rate forecast.

“The numbers reinforce expectations that policymakers will gently lift interest rates over the next couple of years.

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“The figures won’t come as welcome news to the Bank of England though – they’ll be desperate to leave policy unchanged until we get some clarity over Brexit, and won’t want to be forced into a rate rise by accelerating prices.

“A rise to 1% is tentatively priced in for around May next year, though clearly a disorderly Brexit would force a dramatic rethink.”

From – SkyNews

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