British inflation surges to five-month high in June
Consumer prices rose 1.9 per cent on the year in June, the Office for National Statistics says
Shoppers cross Oxford Street between a line of buses and taxis in London. Photograph: Peter Macdiarmid/Getty Images
British inflation unexpectedly surged to a five-month high last month and house prices continued to accelerate, prompting financial markets to increase bets on an early Bank of England rate rise.
Consumer prices rose 1.9 per cent on the year in June, the Office for National Statistics said. Economists taking part in a Reuters poll had expected inflation to rise to just 1.6 per cent from 1.5 per cent, a four and a half year low, in May.
Separate data showed house prices also picked up speed, with property prices in London jumping by a record 20.1 per cent over the 12 months to May.
Inflation in Britain had been largely declining over the last year, helping the Bank of England to hold off on raising interest rates despite Britain’s surprisingly strong economic recovery.
Today’s data caused British government bond prices to tumble and sterling to rise as markets grew more confident that the Bank of England could raise rates before the end of the year.
“The amount of spare capacity in the UK economy is being eroded,” said ING economist James Knightley. “Given the BoE is targeting inflation in 2 years’ time, not what it is doing right now, we now favour a rate hike in November.” However, some economists said the scale of June’s inflation increase was largely driven by one-off factors.
The largest contribution to the year-on-year increase came from clothing and footwear prices - which did not fall as usually occurs in June when summer sales tend to start.
An ONS official said there were signs that good weather last month may have deterred retailers from cutting prices. Food also contributed after it was weak last year.
The ONS said there were no significant downward contributions to consumer price inflation.