CPI inflation rises to 2.5%

Inflation in the UK has increased by 2.5% in a year, new data published by the Office for National Statistics (ONS) has revealed.

The latest figure means that inflation is now firmly above the Bank of England’s inflation target of 2%.

The Consumer Prices Index (CPI) from the ONS rose by 2.5% in the 12 months to June, a figure up from 2.1% to May. On a monthly basis, the ONS also confirmed that CPI inflation rose by 0.5% in June, compared with a rise of 0.1% in June 2020.

The ONS suggested that price movements for food, second-hand cars, clothing and footwear, eating and drinking out, and motor fuel are the main reasons for the higher monthly rate this year than a year ago.

AJ Bell financial analyst, Laith Khalaf, said that the UK is now still stuck in “inflationary limbo”.

“We can’t tell if rising prices are a statistical blip, or a more concerning and permanent feature of the global economic recovery,” Khalaf warned.

“Looking forward, it’s going to be a while until CPI data will reveal if long-term inflation is under control or not. In the meantime, the upcoming first half results from UK banks should give some indication of how concerned we should be about inflation.

“If loan growth is rising sharply, that will mean the amount of money in the economy is surging, and will likely find its way into price rises. If loan growth remains subdued, that suggests economic activity is relatively well anchored, and the central bank is right to look through today’s inflation numbers.”

Killik & Co associate investment director, Rachel Winter, added: “Increased inflation in many instances remains a positive sign of much-needed economic growth. However, if inflation continues to creep away from the Bank of England’s 2% target, the central bank may be forced to act sooner than anticipated when it comes to raising interest rates.

“UK individuals are collectively sitting on £1.7trn of cash, most of which is in low interest accounts and is not keeping pace with inflation. Those with excess cash may wish to consider investing in assets that have historically offered protection against inflation. Commodities are an option, as are real estate investment trusts that can raise rental charges in line with inflation.”

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