Inflation hits 3.8% in June

Latest CPI/RPI figures

Latest CPI/RPI figuresThe rising cost of food and fuel drove UK inflation up to 3.8% in June up from 3.3% in May, according to The Office for National Statistics.

This means that inflation is nearly double the government’s 2% target and already closing on the 4% end-of-year figure predicted by the Bank of England.

The increasing inflation figure gives the Bank of England’s Monetary Policy Commitee far less room to cut interest rates amidst concerns over the economy as they are expected to cut rates only when inflation is under control.

The ONS found that food and non-alcoholic drink prices were the main influences behind the inflation rise with price increases at a record 2.1%

Oil prices, touching $147 a barrel last week, also increased inflation with petrol rising by 5.3p per litre between May and June where the same period last year saw an increase of just 1.3p per litre. The knock-on effects of high oil and petrol prices has been felt considerably in the transport industry which has had to pass on costs, also upping the price of deliveries.

Commenting on the latest figures, David Kern, Economic Adviser to the British Chambers of Commerce, said:

“Annual CPI inflation, at 3.8% in June was worse than expected. Coming after yesterday’s poor producer price inflation statistics, the new figures highlight the acute pressures facing consumers and businesses. Margins are facing a real squeeze.

“Nevertheless, we believe it would be a serious mistake to react to the upsurge in inflation by raising interest rates. Further increases in CPI inflation, to levels above 4%, are inevitable in the next few months whatever the MPC decides to do. But the impact of higher interest rates on the real economy would be devastating, especially while all the evidence suggests that inflation will fall sharply later in the year and in 2009.

“Against this background, we urge the MPC to keep interest rates on hold at 5% for the next few months and consider modest cuts later in the year once inflation has peaked.”

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