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Danny McCance 16 May 2017 12:45pm

UK inflation highest in four years

The figures, released today by the Office for National Statistics (ONS), put inflation at 2.6%, the highest it has been since June 2013

The Consumer Price Index (CPI) has also seen a massive increase in the last 12 months, from 0.3% in April last year to 2.7% last month.

The ONS said that air fares - due to the timing of Easter - along with prices for clothing, vehicle excise duty and electricity contributed to the increase.

The rising rate of inflation and CPI will cause a squeeze on pay, the growth of which is expected to remain at a muted 1% over the year to come.

“Having hovered close to zero back in 2015, inflation has really picked up in 2017, doubling in the last six months alone and now at its highest level for almost four years”, said Matt Whittaker, chief economist at the Resolution Foundation.

"The pickup was largely a function of three factors” explained Martin Beck, senior economic advisor to the EY ITEM Club.

“First, the timing of Easter, which came later in 2017 and as a result kept inflation subdued in March but boosted it in April.

“Second, the impact of rising domestic energy prices and third the continued pass-through of last year’s depreciation of sterling”, he said.

Whittaker raised concerns over the state of wages, “Coming so soon after the deep post-crisis pay squeeze, this marks a new chapter in a truly terrible decade for pay – the worst in over two centuries.

“Additionally, higher inflation will also mean that the four-year freeze in working age benefits will really be starting to bite for millions of low and middle income families”, he said.

"Inflation is set to rise to around 3% or higher in the months ahead - with prices likely to be rising faster than wages in the months ahead”, Andrew Sentance, senior economic adviser at PwC said. 

“The resulting squeeze on consumer spending will reinforce the slowdown in economic growth we are now seeing,” added Sentance.

Last week, the Bank of England’s Monetary Policy Committee (MPC) voted 7-1 to keep the interest rate at 0.25%.

National chairman for the Federation of Small Businesses Mike Cherry said, “The number of small firms reporting an increase in operating costs is at its highest since 2013. That means it’s harder for them to invest, expand and create jobs.

“If costs continue to rise, it will undoubtedly have an impact on growth across the country,” added Cherry.

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