Rising fuel prices push up UK inflation for first time in 2018 | Business

Higher fuel prices in July pushed up the rate of inflation for the first time this year to put an extra squeeze on household incomes following several months of falling wages growth.

The consumer prices index (CPI) rose at an annual rate of 2.5% last month after holding at 2.4% in the previous three months, following a steep rise in annual energy price growth from 8.7% in June to 9.3%.

The increase in fuel costs, which have pushed the cost of unleaded petrol above £1.30 a litre in many parts of the country, prompted warnings that inflation would remain well above the Bank of England’s 2% target for the rest of the year.

John Hawksworth, chief economist at the consultancy PwC, said the recent fall in the pound would increase the cost of imports, including fuel, and add pressure on prices for businesses and consumers.

He said: “Given the recent weakness of the pound, inflation may remain sticky at around this rate for the next few months, keeping real wage growth to a minimum.”

Earlier this week official figures showed wages growth falling steadily over recent months, from 2.8% in February to 2.4% in June.

Hawksworth added: “With jobs growth also slowing in the latest figures, real household income growth will remain subdued and we expect that this will continue to hold back consumer spending growth to modest levels over the next 12-18 months.

“With Brexit-related uncertainty continuing to weigh on business investment, the UK is likely to remain in the slow lane of global growth for some time to come,” he added.

The Office for National Statistics said the retail prices index (RPI), which includes some housing costs, rose at 3.2%, lower that the 3.4% seen in June, but still well above CPI. The figures prompted the transport secretary, Chris Grayling, to announce rail fare rises, which are linked to July’s RPI, of 3.2%.

Tej Parikh, an economist at the Institute of Directors, an employers group, warned that the rising cost of fuel would feed into higher utility bills, squeezing low and middle income family budgets the most.

“These figures show that the cost-of-living squeeze is not yet a thing of the past. This is likely to weigh down consumer spending, posing fresh problems for embattled high street businesses,” Parikh said.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said a pick-up in the cost of recreational goods and services to 3.1%, from 2.4% in June, mostly related to computer games, was another reason for the rise in average prices.

“Inflation in most other components of core inflation eased, as the boost from sterling’s depreciation continued to wane,” he said.

“Clothing inflation, for instance, dropped further in July to -0.4%, from 0.4%, indicating that June’s decline wasn’t merely due to retailers starting their summer sales slightly earlier than usual,” he added.

Jason Lennard, a senior economist at the National Institute for Economic & Social Research, said the institute’s measure of underlying inflation fell by 0.2 percentage points to 1% in the year to July. The measure excludes 5% of the highest and lowest price changes.

He said a price war on the high street would bring inflation back down to 2% by the end of the year.

“This measure of core inflation fell in 10 of the 12 regions of the United Kingdom. The fall cannot be explained by the summer sales, as the fraction of goods and services at sales prices was the lowest since 2012.

“The fall is instead explained by more non-sale price decreases and fewer price increases. Based on this analysis, CPI inflation is set to return to the 2% target over the year ahead.”

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