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Inflation climbs to 15-month high but increase is overshadowed by continuing uncertainty over Brexit

By John Mulgrew and PA

Published 13/04/2016

The cost of air travel rose 17.9% over the period, according to the ONS
The cost of air travel rose 17.9% over the period, according to the ONS

The "prevailing uncertainty" surrounding a Brexit is continuing to have a bigger impact on the UK's economy than the rate of inflation, which is now at a 15-month high.

The price of clothes and air fares pushed the Consumer Price Index (CPI) inflation rate to 0.5% in March.

The Office for National Statistics (ONS) said the price of clothes rose by 1.7% year on year, while passenger transport by air climbed 17.9% over the same period.

The cost of flights also soared 22.9% month-on-month, impacted by the early Easter period.

But food prices fell 3% year-on-year as grocers continued to slash prices amid the ongoing supermarket price war.

Despite March's CPI rise, which was up from 0.3% in February, inflation still remains historically low, with the Bank of England predicted to hold it far below the Government's target of 2% for some time.

While consumers are benefiting from a low rate of inflation, the Bank of England is likely to welcome the increase, moving it closer to its 2% target, according to Danske Bank economist Angela McGowan.

"We have seen a small lift in inflation during the first quarter of this year with the latest monthly rise attributed to rising air fares and clothing," she said.

"Although consumers currently enjoy the boost from low inflation, the Bank of England will nonetheless be glad to see the headline rate continue to move closer to its target rate of 2%.

"In normal times we would be talking about the Bank of England thinking about raising interest rates when the headline rate of inflation hits 1% and is expected to continue rising. But we are not in normal times.

"With the prevailing uncertainty around the Brexit referendum, the importance of these latest inflation figures has diminished.

"Monitoring political news and opinion polls is equally important at the moment as any vote for a Brexit will bring with it a depreciated pound, inflationary pressures and an economic shock for the UK that the Bank of England will be forced to swiftly react to."

Sharply lower oil prices have also put a dampener on inflation, leaving the central bank in no hurry to raise rates above 0.5%, where they have remained for nearly seven years.

ONS statistician Phil Gooding said: "After an unprecedented period of CPI being close to zero, inflation has begun to rise again.

"Dearer clothing and higher air fares, influenced by the timing of Easter, are behind the rise in CPI, which is still low by historic standards."

It comes after CPI remained at 0.3% in February, the same as in January, as the falling cost of second-hand cars offset rising food prices.

The latest figures from the ONS also show the Retail Prices Index measure of inflation rose to 1.6% in March, up from 1.3% in February.

Deloitte chief economist Ian Stewart said: "The Bank of England can take some comfort from the fact that UK inflation has drifted up from last year's all-time lows. But with inflation running at a quarter of its target rate, and with economic uncertainty rife, the Bank is miles away from raising rates. The Bank's big problem is sustaining growth and getting inflation up."

Belfast Telegraph

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