Inflation knocking on the door of three per cent

INFLATION is expected to remain at its highest level in nearly four years, as rising prices on the back of the Brexit-hit pound continued to squeeze British households.

The Consumer Price Index (CPI) measure of inflation is forecast to come in at 2.9% in June, according to consensus estimates, in line with May’s figure but above April’s reading of 2.7%.

It would leave inflation at a near four-year high, as the last time inflation reached 2.9% was June 2013.

The figures will extend the squeeze on household finances as inflation outstrips wages, with CPI having soared as the Brexit-hit pound pushed up the price of imported goods.

Road fuel prices are believed to have dropped by around 1.1% monthon-month in June, according to Scotiabank estimates, while core items such as clothing, household and recreational goods continued to rise.

Alan Clarke, head of Scotiabank’s European fixed income strategy, said food prices and air fares likely made the most notable gains last month, alongside smaller increases in alcohol costs, restaurant prices and package holidays.

If consensus forecasts are correct, CPI will continue to outpace the Bank of England’s 2% target and will put pressure on policymakers to consider hiking rates beyond 0.25%.

The Bank of England said in its May inflation report that CPI would peak at 3% later this year, as the pound’s slump following the Brexit vote causes price tags on everyday items to tick higher.

Recent comments from MPC members including Mr Carney have suggested there is growing support for a rate hike.