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UK inflation rate jumps in August

Tuesday, 12 September, 2017 - 17:15

The cost of living in the UK rose by a more-than-expected 2.9 percent in August, equalling May’s four-year high. The figures, released by the Office for National Statistics on Tuesday, point to the continued weakness of Sterling since the Brexit vote as being partly to blame for rising costs. The report also found that input prices – costs associated with the production of goods – rose by 7.6 percent year-on-year in August. This is the first time that that number has risen in seven months and although it remains well below its high of 19.9 percent in January it does imply that more consumer inflation could be on the way. News of the spike in the consumer price index led to a rally in the Pound which reached a one-year high against the Dollar ($1.3250) and a six week high against the Euro (1.11). Sterling has now clawed back around 10 percent of its value since it started falling in the wake of the Brexit vote as traders increasingly expect the Bank of England to raise interest rates to tackle inflation. At the BOE meeting last month its Monetary Policy Committee voted by 7 to 2 in favour of maintaining interests rates at their 0.25 basis points; however, the bank’s Chief Economist Andy Haldane has intimated that he may be ready to vote in favour of a rate rise soon – a decision that could “prompt a re-appraisal of the potential path of interest rates,” according to James Knightley, chief international economist at ING in London. The rising cost of living is also putting pressure on the government which is coming under fire from unions to raise wages for workers in order to keep up with inflation. On Tuesday, it was announced that the public sector pay cap, an austerity measure in place since 2013, would be lifted for police and prison officers who will see a 2 percent and 1.7 percent rise in pay respectively. Unions, however, are agitating for an across the board wage rise and have threatened to ballot for strike action unless their all public workers receive a similar pay increase.

 


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