undergroundnewsroom.com May 27, 2018

UK Wage Rise Beats Inflation - Maybe

19 April 2018, 01:59 | Gordon Grant

Inflation drops to 2.5% but households still 'squeezed'

Britain's Prime Minister Theresa May attends a press conference in 10 Downing Street London

United Kingdom inflation dropped to 2.5 per cent from 2.7 per cent in March, data released by the Office for National Statistics (ONS) revealed this morning (18 April).

He added: "Alcohol and tobacco also helped ease inflation pressures, with tobacco duty rises linked to the Budget not appearing this March, thanks to its new autumn billing".

The latest United Kingdom inflation data is unlikely to get in the way of a May rate hike, but a further deceleration in core CPI over coming months could prove to be a headache for policymakers later in the year, James Smith, an ING economist, said.

The much touted single digit national month to month inflation rate, as measured by the Consumer Price Index (CPI), continues to take an upward turn with one step up by 0.1 percent as households are feeling the pain from rising cost of living.

Wednesday's inflation data comes just 24 hours after the ONS revealed that wages in the United Kingdom grew by 2.8% over the most recent data period.

Prior to the vote to leave the European Union in June 2016, inflation in the United Kingdom had been subdued for several years, but the vote caused a fall in the value of the pound which pushed up inflation.

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United Kingdom inflation slowed to a one year-low in March, diminishing scope for a rate hike in May as markets widely expect.

Matt Hughes, senior ONS statistician, said: "The labour market continues to be strong and, for the first time in nearly a year, earnings have grown slightly after inflation has been taken into account".

Latest estimates show that average weekly earnings for employees in Great Britain in real terms (that is, adjusted for price inflation) increased by 0.2% excluding bonuses, and by 0.1% including bonuses, compared with a year earlier.

"At the same time the Bank would dearly love some more firepower to counter the next economic downturn, whenever that may be". It was the first time since January 2017 that wage growth had outstripped inflation.

While the United Kingdom has been an outlier, with inflation hitting 3% in recent months, Mr Grogan said today's figures surprised the market. Figures showed air transport falling 2.1 per cent month on month, a smaller decline than the 3.9 per cent fall in March 2017. Against the euro, the pound was trading 0.3 per cent lower at 1.15.

"Despite inflation continuing to fall for the second consecutive month, it still remains high, putting pressure on finances", said Giles Cross, chief executive at peer-to-peer business lender Folk2Folk.

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