Following yesterday’s surprise drop in the UK unemployment rate, today, there is more important economic news from the UK, the world’s fifth-largest economy. The annual rate of UK inflation more than doubled to 1.5 percent in April, whilst rising 0.7% on a monthly basis from March.
The UK Consumer Prices Index (CPI) inflation figures published by the Office for National Statistics (ONS) on Wednesday show the effect of rising household utility, clothing, and petrol prices.
The monthly increase of 0.7 percent in March matched market expectations. Meanwhile, the annual increase was slightly higher than the 1.4% increase forecast by analysts.
However, it is important to note that he official ONS inflation figures also showed that the rate of inflation was kept low due to the temporary 5 percent rate of VAT (value added tax) on hospitality. This is expected to end in September.
If the VAT rates were at their normal levels, the consumer price index would have risen to 3.2 percent, the highest rate the rate would have been for nine years.
In April, prices of eating out in restaurants, staying in hotels, and clothing all rose sharply, following the reopening of non-essential shops and hospitality venues being permitted to serve customers outside.
Inflation Set to Pick Up Further
Howard Archer, an economist with forecaster EY Item Club expects inflation to increase further as lockdown measures ease. He commented:
“With inflation set to pick up further over the coming months and the economy looking poised for decent recovery from the second quarter, attention is increasingly focusing on when the Bank of England could start to tighten monetary policy rather than will the Bank provide further stimulus,”
“However the Bank of England did not appear to be in a hurry to tighten policy in the minutes of the May MPC meeting.”
Howard Archer, EY Item Club
