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Inflation jumps again as petrol, cars and food costs all rise

·2-min read
Chancellor Rishi Sunak (AP)
Chancellor Rishi Sunak (AP)

PRESSURE on the Bank of England to move interest rates sooner than it plans intensified today when inflation again jumped much faster than the City was expecting.

Prices rose at 2.5% in June, up from 2.1% in May and sharply higher than the 2.2% anticipated as petrol, food and cars all cost more than they did a month earlier.

Yesterday, the equivalent figure in the US came in at a 13-year high of 5.4%, increasing fears that inflation is turning into a global problem.

UK inflation is at a three-year high having risen for the last four months in succession. Fuel costs are up more than 20%, while hospitality prices rose more than 3%.

The Bank insists inflation is a temporary issue that will correct itself early next year. Some in the City are increasingly of the view that it could run out of control.

Capital Economics is one firm that backs the Bank. Paul Dales of Capital said today: “Inflation should fall back sharply in 2022 as the boost from commodity prices and shortages fades.” It predicts no increase in interest rates until 2024.

Rachel Winter at Killik & Co, said: “Increased inflation in many instances remains a positive sign of much-needed economic growth. However, if inflation continues to creep away from the Bank of England’s 2% target, the central bank may be forced to act sooner than anticipated when it comes to raising interest rates. At the moment, rising inflation is thought to be a temporary blip caused by a variety of factors. One being the high oil price, which has resulted in increased prices for items such as petrol. Additionally, as Freedom Day approaches, the hospitality industry has experienced a surge in demand as a result of the relaxation of coronavirus restrictions.”

A further risk to inflation is the amount of money Britons saved during the pandemic. By some measures they have £1.7 trillion of extra cash to spend, perhaps on holidays, cars and other consumer goods.

Robert Alster at wealth manager Close Brothers Asset Management said: “In ‘normal’ times it’s possible that the Bank of England might consider deploying tools to keep a lid on inflation over the summer. But these are not normal economic times. With the Furlough Scheme coming to an end, and the possibility – hopefully remote - of social restrictions being reintroduced towards the winter - the Bank will be keen to hold off from making any decision on interest rates unless inflation looks like it’s rising too quickly.”

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