The UK economy is at risk of ‘stagflation’ after official data revealed that inflation edged up to 3.6 per cent in June, putting further interest rate cuts by the Bank of England at risk.
In the latest set of price growth data before the next monetary policy decision in August, the Office for National Statistics (ONS) reported that price growth remained well above the Bank’s two per cent target rate.
Services inflation was 4.7 per cent in the year to June, the official statistics body also revealed.
A Bloomberg poll of economists predicted inflation would hit 3.4 per cent in the year to June.
It is the third month in a row that inflation has remained above the three per cent mark, presenting a challenge to Bank of England rate-setters voting for cuts.
Richard Heys, acting chief economist at the ONS, said a rise in motor fuel prices and food inflation had pushed the rate higher.
AJ Bell’s Dan Coatsworth said: “There is a real threat of stagflation as the rate of inflation moves higher and the economy is stuck in the mud,” adding that the data leaves the Bank’s rate-setters “in a tricky situation.”
Chancellor Rachel Reeves said: “I know working people are still struggling with the cost of living.
“That is why we have already taken action by increasing the national minimum wage for three million workers, rolling out free breakfast clubs in every primary school and extending the £3 bus far cap. But there is more to do and I’m determined we deliver on our plan for change to put more money into people’s pockets.”
The initial jump in inflation in April was primarily due to increases in prices following Rachel Reeves’ higher taxes, which included a rise in employers’ national insurance contributions (NICs), a rise in the national minimum wage, and soaring utility bills.
Consumers could see prices inch up further this summer before a gradual decrease, according to forecasters.
Markets believe that rate-setters will vote for a cut despite some hesitancy among some economists.
The Bank of England’s last forecast predicted that inflation could rise to 3.7 per cent in September before gradually falling to two per cent over 12 months.
Original source - City AM
