Inflation in Britain Fueled by Oil and Brexit, Moves Higher

Inflation in Britain hit the highest point since September of 2013 during April, increasing its steep incline since the Brexit vote to leave the European Union as well as further tightening the squeeze on the cost of living for British households on the run up to the June 8 national election.

Consumer prices increased during April by an annualized 2.7%, said the Office for National Statistics Tuesday and economists announced that inflation would increase further as the pound’s deflation since the vote to leave the EU pushes up costs of imports.

Much of the increase during April was because of the Easter holiday arriving later than usual which pushed air fares up. However, a combination of the fall in the pound and higher prices of oil are pushing inflation up for consumers as well as business.

Last week the Governor of the Bank of England Mark Carney issued a warning that 2017 would be a challenging one for consumers. Carney said wages will fall in inflation-adjusted terms.

On Tuesday, the head of the largest British trade union said the data on inflation meant that living standards should be top priority during the election campaign.

Prime Minister Theresa May has been predicted to defeat her opponent in the Labor Party, who has called for ending strict limits on pay growth in the public sector and an increase in the minimum wage.

Despite a rise in inflation, the economy has not come close to overheating, with all but one of the eight policymakers in the BoE voting last week to maintain interest rates where they are.

The most recent inflation figures received a boost in a large part by an increase in airfares during Easter which in 2016 took place during March.

Rising prices of clothes, higher taxes for cars and electricity pushed up Britain’s consumer prices as well.

Putting aside the one-off effects, some believe more inflation is in the future. One British analyst for a London-based bank said he is convinced the market has underestimated a further increase to inflation moving forward.

He added that he expected food costs, electricity bills and a weaker pound to apply more pressure to future prices.

Many economists said that the impact of the drop in sterling on consumer prices will be felt stronger during the current months and the BoE is expecting inflation to reach its peak at close to 3% before the end of 2017.

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