UK Inflation hits 2.7% in April 2017, a four-year high
UK inflation, as measured by the Consumer Price Index (CPI) twelve-month rate, was up 2.7% in April 2017 from 2.3% in March 2017, exceeding City forecasts of 2.6%. The Office for National Statistics (ONS) reported that air fares were the main contributors rising 18.6% from the previous month, due to Easter falling later than last year. Increasing prices for clothing, vehicle excise duty and electricity were also contributing factors.
Over the same period, wages have increased by only 1.9% leaving a shortfall that highlights the increasing squeeze for UK households. With rising prices, pressure on households to cut consumer spending on non-essentials is growing as disposable incomes shrink. The effects on the UK's economic growth are being closely monitored by the Bank of England, which has previously indicated that there is a limit to the Monetary Policy Committee's tolerance of higher inflation levels.
Commentary
The inflation rate has once again overshoot forecasts placing the spotlight firmly on the Monetary Policy Committee. Only last week the Bank of England predicted that inflation would remain below 2.7% until later this year, when it would be expected to peak at 2.82%. April's figures place mounting pressure on the Committee to review interest rates, with the minutes from May's meeting indicating that further upside surprises could lead more members to vote for an interest rate increase, albeit only likely back up to the 0.50% level.
Despite this, the pressures on household disposable incomes means that the Committee is unlikely to reach a majority for a rate hike. We will however continue to monitor the situation closely and let you know should this outlook change.