The cost of fuel rose to its highest level in almost four years last month, holding up the rate of inflation in the UK, according to the latest data from the Office for National Statistics, released on Wednesday.
Britain’s headline rate of consumer price inflation (CPI) was 2.4% in the month of June, unchanged from the previous month. CPIH, the ONS’ favoured measure of inflation was also unchanged, steady at 2.3%.
That, however, was almost entirely down to the rising price of petrol — which itself has been triggered by steadily rising oil prices. Oil is now at around $71 per barrel, a level not seen since around four years ago.
“Petrol prices rose by 2.7 pence per litre between May and June 2018 to stand at 128.0 pence per litre in June, the highest average price since September 2014,” the ONS said in its release.
Without the increased price of fuel, the ONS said, it is likely that the UK’s headline rate of inflation would have dropped in the month, continuing a steady decline witnessed throughout 2018.
Here’s the chart from the ONS:
“Consumers have been feeling the benefit of the summer clothing sales, and computer game prices have also fallen,” Mike Hardie, the ONS’ head of inflation said in a statement.
“However, gas and electricity and petrol prices all rose, with consumers seeing the highest price at the pump for nearly four years, with inflation remaining steady overall,” he added.
Prior to the vote to leave the EU in June 2016, inflation in the UK had been subdued for several years, but the vote caused a fall in the value of the pound which pushed up inflation. However, as the pound recovers, inflation has started to fall, dropping from 3% in January to its current level.
The latest inflation figures come just 24 hours after the ONS showed UK employment hitting its highest level ever, and that wages in the UK continue to rise steadily.
Average UK earnings increasing by 2.7% in the three months up to May, meaning that wages are still growing above inflation, making the average Brit just a little bit better off each month.
Tumbling sterling
The pound fell sharply on the news as the steady rate of inflation seemingly makes it slightly less likely that the Bank of England will decide to raise interest rates at its next Monetary Policy Committee meeting on August 2.
“Markets had been pricing in around an 80% chance the Bank would lift borrowing costs in August, but today’s inflation data combined with yesterday’s lacklustre wage growth figures could force policymakers into a rethink,” Ben Brettell, senior economist at Hargreaves Lansdown said in a statement.
As of 9.55 a.m. BST (4.55 a.m. ET) the pound was down close to 0.7% against the dollar, as the chart below illustrates (note the sharp fall just after 9.30 a.m.):
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