Surprise increase as UK inflation hits six-month high

Theatre tickets and computer games contributed the most.

Article updated: 19 September 2018 12:00pm Author: Graham Spooner

Today’s inflation figures from the Office for National Statistics come as a bit of a surprise as the inflation rate for August rose to a six-month high of 2.7%. In response to the hike, the equity markets have turned lower and sterling has jumped, confounding expectations of a small drop.

Rising prices for recreational goods, transport and clothing drove the rise so the man on the street appears to have been hit in the pocket from a rise in the cost of clothes for the holiday and the fares to get there, along with higher petrol prices. This will rubber stamp the expected long term trend for interest rates to creep higher.

On a day when Kingfishers shares are down by 5% on the back of its ongoing struggles and changes in the way we all shop, for retailers, who are already eyeing the important festive season this will not come as good news.

The surprise increase will also prove unwelcome for hard-pressed British households, which after a long-suffering had recently begun to see wages rising above inflation, following a protracted squeeze on living standards triggered by the Brexit vote. Workers’ pay rises are gradually increasing, although they remain close to inflation.

The ONS claim the biggest contribution to the increased cost of living to be from the rising price of recreation and culture, driven by higher ticket prices at the theatre and from the cost of new toys and computer games.

Indeed, the Bank of England has expressed concern that inflation remains above the 2% target set by the government, fuelling its decision to raise interest rates last month above the emergency level introduced after the financial crisis for the first time.

It is expected, nonetheless, that this is not for the long-term as inflation is likely to slow as the year goes on and we move into 2019.

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Graham Spooner

Investment Research Analyst

Graham started out as a fully authorised dealer on the Stock Exchange trading floor and for various banks, before becoming an FCA-approved investment adviser. Now a respected voice in the media, Graham’s share tips and comments on the markets are frequently sought by the national press.

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