Inflation spike prompts talk of interest rate rises

The Bank of England

Inflation rose from 1.5% in May to 1.9% in June, close to the Bank of England's 2% target

LAST UPDATED AT 13:55 ON Tue 15 Jul 2014

The rate at which the prices of goods and services to UK consumers is increasing has risen sharply, the Office for National Statistics says. The latest Consumer Prices Index (CPI) shows the nation's consumer inflation rate at 1.9 per cent, close to the Bank of England's two per cent target.

The CPI is a measure of the average national cost of a basket of 700 consumer goods and services. Each month, the ONS produces a figure showing the percentage increase on the same month in the previous year.

This May, the basket cost 1.5 per cent more than it did in May 2013; by June the rate of increase in prices had risen to 1.9 per cent.

The new rate is close to the Bank's target rate of two per cent. The Bank seeks to limit inflation by setting interest rates, so the news of a sharp rise in the CPI prompted speculation that the Governor, Mark Carney, will soon announce an interest rate rise.

Chris Williamson, chief economist at research firm Markit, told the BBC: "The news will further fuel expectations that the Bank of England will start raising interest rates sooner rather than later, with November looking the most likely month for the first hike."

According to the ONS, the inflation rise was driven by increased prices for women's clothing, air fares and furniture. Footwear, food and non-alcoholic drink prices also pushed the rate up.

Another economist, World First's Jeremy Cook, told the BBC the inflation rise was a "big surprise". He pointed out that for the many people coping for several years with wages rising at a lower rate than inflation, "the situation just got a little more painful".

New figures on wages for the three months to May 2014 are due from the ONS this week. After six years of not keeping up with inflation, average wages began to rise again in April - but still not as fast as the cost of living.  · 

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