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Inflation set to rise for third consecutive month

Published 12/09/2016

Inflation looks set to rise for the third month running
Inflation looks set to rise for the third month running

Inflation looks set to step up for the third month in a row when official figures for August are published on Tuesday.

The Consumer Price Index (CPI) measure of inflation is forecast to reach 0.7%, building on rises in June and July when the cost of living hit 0.5% and 0.6% respectively.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, expects upward pressure to come from growth in import prices following sterling's collapse in the wake of the Brexit vote.

He said a string of recent surveys have suggested that retailers have been quick to pass on rising import costs to consumers.

CPI could even notch up to 0.8%, as pricier motor fuels bump up the cost of living, Mr Tombs added.

Economists will keeping a close watch for any clear signs of Britain's vote to leave the European Union having an impact on CPI last month.

The Office for National Statistics (ONS) said previously that there was little evidence of the pound's post-Brexit vote slump having an impact on July's CPI.

However, the ONS said the Producer Prices Index's July reading showed the UK currency's drop to 31-year lows was ramping up import costs for British manufacturers.

August's CPI announcement will come during a busy week for the UK economy, with the latest employment data being released on Wednesday and the Bank of England's interest rate decision following on Thursday.

The outlook for economic growth has brightened in recent weeks, with manufacturing and services PMI survey's for August showing a bounce back in activity after July's slump.

Retail sales also performed strongly in the first month after the Brexit vote, hitting a higher-than-expected rise of 1.4%.

The economy's surprising resilience has prompted some economists to up their growth forecasts for UK gross domestic product (GDP) as Brexit uncertainty eases.

The Bank of America Merrill Lynch said last week that Britain was on course to dodge recession, as it raised its GDP estimates to 1.8% from 1.7% for this year and to 0.6% from 0.2% for 2017.

However, Standard & Poor's has panned recent positive economic data showing the British economy is holding up following the Brexit vote, dubbing it a "mirage" and warning of a "cloudy" outlook for the country.

The credit ratings agency said that despite a barrage of positive economic data for employment, retail and the services and manufacturing sectors, "it has no bearing on the cloudy longer-term outlook".

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