Inflation hits four year high of 2.9%

Inflation rose to a four year high of 2.9% in May, Office for National Statistics data shows.

This outstrips the Bank of England’s inflation forecast of 2.65% in May.

Paul Hollingsworth, UK economist at Capital Economics, reckoned inflation will peak at 3% by the end of the year.

He said: “After rising unexpectedly in May, we think that CPI inflation is now not far away from its peak.

“Although fuel prices fell in May, putting downward pressure on the headline rate, this was offset by rises in a number of other categories, computer games and package holidays in particular.

“The drop in the pound has fed through faster than expected, rather than by a larger amount.

“As a result, while we think that CPI inflation will peak at a little above 3% before the end of this year, it is likely to drop back fairly quickly in 2018. “

The value of the pound tanked after the UK voted to leave the European Union, while the continued low interest rates and quantitative easing were expected to result in higher inflation.

However Hollingsworth added: “As a result, today’s figures shouldn’t worry the MPC and, coupled with the ongoing political uncertainty, we expect it to unanimously vote to leave interest rates on hold at tomorrow’s meeting.”


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