Spectre of higher interest rates after 'dramatic' doubling in inflation: reaction
Inflation more than doubled last month as energy prices soared and clothing retailers pushed up their prices, with further hikes in the pipeline.
The Office for National Statistics (ONS) said the annual rate of consumer price inflation jumped from 0.7 per cent in March to 1.5 per cent in April – taking it to the highest level since March last year.
The surge in the cost of living came as gas and electricity prices rose sharply, as the default tariff cap was increased recently compared with a cut a year earlier.
Clothes shops also increased their prices last month as non-essential retail reopened around the middle of the month south of the Border and on April 26 in Scotland, while rising oil prices saw motor fuel inflation rise at its fastest pace for more than four years.
Grant Fitzner, chief economist at the ONS, said: “Inflation rose in April, mainly due to prices rising this year compared with the falls seen at the start of the pandemic this time last year. This was seen most clearly in household utility bills and clothing prices.
“As the price of crude oil continues to rise, this has fed through to the cost of motor fuels, which are now at their highest since January 2020.”
There are concerns over soaring inflation this year, as the UK and other countries around the world emerge from the pandemic.
The Bank of England forecast earlier this month that inflation will increase above its 2 per cent target, to 2.4 per cent in the final three months of 2021, largely due to energy prices.
But governor Andrew Bailey has sought to reassure that the spike is likely to be temporary and should return to around 2 per cent in the medium term.
Kevin Brown, savings specialist at Scottish Friendly, said: “A dramatic surge in inflation has been coming ever since the UK economy shut down and we went back into lockdown.
“Pent-up spending demand has been building for months and now that restrictions have begun to ease inflation is starting to rise quickly. Policymakers hope the sudden uptick in consumer demand will be temporary and will burn itself out before they have to raise interest rates.”
Ed Monk, associate director for personal investing at Fidelity International, said: “Inflation has started to take off.
“More than doubling to 1.5 per cent in April, it is now closing in on the Bank of England’s 2 per cent target and could blow past that if the demand in the economy continues to build in the coming months.
“Inflation rising is a sign that the economy is building steam and there’s a question over how far above target the Bank of England will allow price rises to go.”
Steven Cameron, pensions director at Aegon, added: “A sustained period of low inflation has blunted people’s fear of inflation. There’s now a growing realisation that high inflation could be around the corner, which reduces an individual’s purchasing power and what they could buy with their savings over time.”