UK inflation has jumped to 2.9%, as predicted by economists, due to higher fuel prices resulting from the ongoing war in the Middle East.
Inflation had dropped off to 2.6% in the prior month, but the reignition in fighting sent oil prices back up towards $100 during the period, which ultimately has fed through to inflation.
“This morning’s jump in the headline inflation rate from 2.6% to 2.9% comes as no surprise, a strong contribution from the uplift to the energy bill price cap was inevitable. And there was little sign of contagion of the energy shock to other goods and services, core inflation remained at 2.6%, while the services measure fell back a touch,” said Felix Feather, Economist, at Aberdeen.
“So far markets are largely undisturbed by the stronger headline, retaining an expectation for some modest tightening of Bank of England policy. Given evidence of a slowdown in underlying domestically generated inflation (as opposed to more internationally driven goods such as energy commodities) and soft labour market conditions, we see the Bank on hold for the rest of the year.”
This view was also shared by analysts at Hargreaves Lansdown who highlighted recent deterioration in the UK jobs market as a reason why the Bank of England will probably hold off any rate hikes.
“While inflation remains ahead of the Bank of England’s 2% target, the case for rate rises is tempered by the wider economic picture. Unemployment has edged higher, payroll numbers are falling and vacancies have continued to decline, all pointing to a softer labour market,” said Hal Cook, senior investment analyst, Hargreaves Lansdown.