Inflation creeps up
INFLATION rose last month, creeping up from 2.4% to 2.7%, according to the latest government data.
The Office for National Statistics said the largest upward contribution came from transport, notably air transport and motor fuels, and clothing.
Downward pressure came from food.
The Consumer Prices Index (CPI) inflation rate has returned to the levels seen between October 2012 and March 2013 after the slowing to 2.4% in April.
David Swift from Redmayne-Bentley said: “The UK’s FTSE 100 index shrugged off a rise in inflation this morning, as official figures from the ONS showed the Consumer Price Index jumping to 2.7% in May, up from 2.4% the month earlier.
“Although this is well above the central bank’s target of 2%, expectations are that the figure will gain momentum and break the 3% level at some point this year. It remains to be seen what action will be taken if inflation does take off, however Mr Carney’s first meeting as the Bank of England governor will be closely watched as the figures today will likely reduce the chance of further monetary easing.”
Ian Morrison, Northern assurance lead at PwC Leeds, said: “The May increase is higher than anticipated although most economists expected some upward movement as there had been a sharp fall in inflation a year ago in May 2012.
“In addition, the Bank of England said last month that it expected inflation to peak at just over 3% in 2013, before falling back towards the Bank’s 2% target in 2015.
“Nevertheless, in the 35 months since June 2010, there have only been two months where the rate of inflation did not outpace the growth in wages, indicating just how UK household budgets are being squeezed.”
He added: “There is some evidence that the UK is moving slowly into recovery, but much of that is being driven from London and the South East and we are still expecting marginal growth in the North and some other regions in 2013.”
Morrison said this means those regions where growth and recovery is lagging will continue to see real household incomes shrinking for the foreseeable future.
“However, it might not feel like it, but today’s inflation report should be seen in the context of a move towards gradual recovery,” he said.
“Maintaining and accelerating that recovery in the face of external challenges will be a delicate balancing act for business and politicians alike.”
