THE UK INFLATION rate in the month of May rose up to 2.9% – perilously close to the psychological barrier of 3%. This is a big increase on the April rate of 2.7% – both way above the Bank of England’s target of 2% and the highest for four years.
The increase is attributed to small increases in the cost of food (particularly sugar, jam and confectionary) and clothing. The cost of furniture and household goods also rose – and increases in the cost of electricity, which began on 1st May, are also showing up in the figures.
There was also an increase in the cost of imported goods, particularly of computer games, and the cost of foreign holidays. The cost of imports has risen because the value of the pound sterling has fallen as bankers worry about Brexit.
The net increase in inflation occurred despite a fall in the cost of petrol and diesel for the third month running – a trend which has seen various oil-producing countries in the Middle East put up prices of consumer staples in a bid to balance their books as their revenues decrease.
The news leaves the Government’s austerity-based economic policy – or what was left of it after the General Election – looking very weak indeed. For a start, inflation is now rising faster than wages (which are going up at a rate of 2.1% according to the latest ONS figures – though new ones are expected tomorrow). It’s also gone up much more than benefits, which are no longer linked to inflation.
Visa, the credit card company, has done a survey which fond that household spending has dropped – for the first time in four years, during which consumers have relied on credit to fund purchases.
Most commentators expect inflation to keep rising, at least for the rest of the year, as Brexit negotiations take place. UK consumers will really feel the squeeze from the combined effects of increased inflation without a parallel growth in wages. This will result in a drop in the value of goods and services sold in the UK, at a time when it is hard to increase the value of exports because of the uncertainty over Brexit.
The situation will be made worse by companies looking to cut labour costs, either by sacking workers or at least not replacing them – threatening to speed up the downward spiral, possibly towards another recession. If this does indeed occur, it will be the final proof that austerity – practised more strictly in the UK than almost anywhere else – was not the key to solving the 2008 global recession, and the Tories’ economic policy will be proved to have been very wrong for very long.
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