Late Easter set to send inflation jumping to 2.6%

HOUSEHOLDS are facing a further jump in inflation as the weakened pound, utility price hikes and the timing of the Easter holidays drive up the cost of living.

The Consumer Price Index measure of inflation is expected to reach 2.6 per cent in April – the highest rate since September 2013 – when official figures are released tomorrow.

It would mean the squeeze on consumer spending continued last month following a temporary respite in February and March when CPI paused at 2.3 per cent.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said CPI could even reach 2.7 per cent, with upward pressure coming from the airline industry.

Airline prices are expected to have soared last month because the Easter holidays fell in April this year rather than in March in 2016.

He said: “Prices for airline travel tend to rise sharply around the Easter holidays, which will add 0.2 per cent to the inflation rate.”

The way the Office for National Statistics measures prices means Npower and Scottish Power’s decision to increase gas and electricity prices in March will also have an impact on April’s CPI rate.

“Government changes to vehicle excise duty in April also made it more expensive to buy a new car than before,” he added. “Retailers will be continuing to pass on higher import prices to consumers, adding another 0.1 per cent to the rate as sterling’s shock comes through.”

The Bank of England said in its latest inflation report that CPI would peak at 3 per cent later this year as the pound’s slump since the Brexit vote causes price tags to increase.

Despite inflation’s upward march, the bank’s Monetary Policy Committee voted to keep interest rates unchanged on Thursday, with outgoing policymaker Kristin Forbes remaining the sole dissenter.

However, the minutes suggested the next move in rates would still be a rise, with other MPC members repeating that it would take “little further upside news” to consider joining Ms Forbes in voting for a hike.

The Bank said the pound’s gains after the General Election would help inflation drop back in 2018 and 2019.

Howard Archer, chief UK and European economist at IHS Markit, said: “We see inflation easing back from a peak of 3 per cent in late 2017/early2018 to 2.6 per cent at the end of 2018 and 2.3 per cent at the end of 2019.

“This is due to the impact of sterling’s marked drop waning, as well as muted economic activity.”

Inflation held steady in March after rising prices on food and clothing were offset by a drop in the cost of flights and fuel. The biggest rise came from food and non-alcoholic beverages.

Economists had expected the UK economy to slow at the start of this year as consumers tighten their belts in the face of rising inflation.

However, the initial estimate for first quarter gross domestic product came in at a lower-than-expected 0.3 per cent.

‘Prices for airline travel tend to rise sharply at Easter’