Belfast Telegraph

UK inflation hits two-year high as households brace for tax and welfare reform

Economist says families will feel the pinch in 2017

By Rachel Martin

Rising food, fuel and clothes prices pushed UK inflation to a two-year high of 1.2% last month, with 2017 expected to be even harder for households as families face tax and welfare changes in the new year.

The main driver of inflation came from increased clothing and footwear prices - which rose 1.6% between October and November this year, compared with a 0.1% fall over the same period in 2015.

The Government's Consumer Price Index (CPI) measure of inflation hit a higher-than-expected 1.2% in November after easing back to 0.9% in October from 1% in September. Economists had expected growth of 1.1%.

The index tracks the cost of household goods such as breakfast cereal, milk, coffee, chicken, wine, snacks, housing, fuel and oil and uses it to gauge changes to the cost of living.

Richard Ramsey, chief economist at Ulster Bank, said: "The annual rate of inflation still remains low by historic standards and below the Bank of England's inflation target of 2%. That is expected to change in the coming months as the depreciation in sterling fuels further import cost inflation.

"Following the end of the two-year period of consumer goods price deflation, food, petrol, diesel and energy bills are expected to rise further in 2017. This will represent a squeeze on disposable incomes. Indeed, from mid-2017 we are likely to see consumer prices rising at a faster rate than wages.

"It is also worth remembering that the purchasing power of household incomes will be eroded by freezes in a range of welfare benefits and tax credits from April 2016 to 2020. The higher inflation rises, the bigger the squeeze. In turn, this is expected to reduce consumer spending and economic growth."

The higher price tags are mainly down to sterling's plunge to a 31-year low following the UK's vote to leave the European Union.

The weaker pound is causing prices to rise as manufacturers pass on higher material costs to consumers.

Food and non-alcoholic beverages also pushed higher, climbing 0.4% in November, compared with a 0.1% rise the same month last year.

Groceries such as bread, cereals, milk, cheese and eggs were also becoming more expensive.

And fuel prices are also rising. Petrol was up 1.6p a litre between October and November, after falling by 1.5p a litre a year ago and diesel up 2p a litre.

Mike Prestwood, ONS head of inflation, said: "November's slight rally in the value of sterling eased the inflationary pressure on businesses importing raw materials but consumer prices continued to edge upwards."

Belfast Telegraph