UK inflation expected to hold steady at 2.8% and fewer consumers can put money aside

Personal Finance |2 months ago

Analysts polled by The Wall Street Journal expect U.K. consumer-price inflation to come in at 2.8% in August, slightly below May’s peak of 2.9% but well above the Bank of England’s 2% target. The latest inflation data is due to be released on Tuesday this week. Annual price growth was unchanged at 2.6% in July, the Office for National Statistics said. Regular wages are expected to have grown 2.2% in the three months through July, despite the unemployment rate standing at a more than four-decade low.

Steady inflation rate still above the BoE’s target

Britain’s inflation rate broke through the BoE’s 2% target earlier this year as the fall in the value of the pound since the Brexit vote in 2016 pushed up the price of imports. Last month, the central bank predicted inflation would peak at nearly 3 percent in October although since then sterling has weakened further against the euro, meaning the pressure on prices from the weak currency may persist for longer than the BoE expected.

Inflation in five years’ time was seen at 3.4%, compared with 3.3% three months earlier, returning to a peak last seen in May of last year. In addition to inflation data to be released early this week, the BoE is due to make its next statement on interest rates on Thursday.

UK consumers are less able to absorb further financial squeezes

A monthly poll by Lloyds Bank found that 65% of people felt negative about levels of inflation in July, up from 60% in June and the highest level since January 2014. Lloyds said people were also less confident about the UK’s financial situation, with 69% feeling negative, up from 67% in June and 60% in July 2016.

Transport costs are likely to be one of the main drivers of higher inflation, as petrol and diesel have become more expensive in recent weeks.

“For road users, petrol prices are up after the respite given by lower prices over the summer,” said James Brown of consultancy firm Simon-Kucher. “Driving to work cost 5% more in August and early September than last year.”

Robin Bulloch, the managing director of Lloyds Bank, said: “With the rate of savings already at a record low, significantly fewer people now expect to be putting more money aside in six months’ time. While the pressure on disposable income makes this understandable, it does mean consumers are less able to absorb any further squeeze on their finances.”

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