The annual inflation rate for the U.K. increased in July by 0.6 percent measured by the Consumer Prices Index inflation rate compared to 0.5 percent in June, according to the Office of National Statistics.
The ONS said that higher prices of alcoholic drinks and hotel rooms were also responsible as well as the drop in the value of the pound for the increase in the CPI.
The Retail Price Index measure of inflation was also up by 1.9 percent in July from its June record of 1.6 percent. The RPI inflation rate is the cap with regard to the extent regulated rail fares in England, Scotland and Wales can increase in the coming year.
According to the separate figures from the ONS, the decrease of the value of the pound after the U.K. referendum to leave the EU increased import costs for its local manufacturers.
Input prices taken from manufacturers increased by 4.3 percent in the year ending July as opposed to a slide of 0.5 percent in the year ending June.
The largest increases came from imported food materials that were up by 10.2 percent, and the increase in the price of imported metals which was up by 12.4 percent. The price of finished goods coming from factories were also pushed up by 0.3 percent than the year previous, resulting in the first increase since June 2014.
“There is no obvious impact on today’s consumer prices figures following the EU referendum result, though the Producer Prices Index (PPI) suggests the fall in the exchange rate is beginning to push up import price faced by manufacturers,” according to Mike Prestwood, head of prices at the ONS.
Chief UK economist at Pantheon Macro economics, Samuel Tombs claims that the pound’s fall was the only cause for the increase in the CPI inflation, which has been its highest since November 2014.
The pound is 13 percent below its level against the dollar just before the referendum and 10 percent lower than the euro.
“Sterling’s depreciation ensured that pump prices rose by 0.7% month-on-month even though dollar oil prices declined,” he said.”As a result, we continue to think that CPI inflation will hit 3% in the second half of 2017.”
As product prices from companies increase, wages could be affected as businesses are forced to cut down on costs, according to Howard Archer, chief UK and european economist at IHS Global Insight.
“Companies may well look to clamp down on workers’ pay as they strive to save costs in a more difficult environment and as imported input prices are lifted by the weakened pound,” Archer said. “Meanwhile, a likely softening labour market and reduced consumer confidence will dilute workers’ ability and willingness to push for higher pay awards.”
Archer believes that even if the country is able to reach its target 2 percent inflation, the Bank of England will continue to push down interest rates to help stimulate growth. He expects the Bank to reach interest levels of 0.1 percent in November down from the current 0.25 percent.