ANNUAL UK consumer prices index inflation has surged above the Bank of England’s target, overtaking earnings growth to signal a real-terms fall in pay, with petrol prices having jumped amid sterling weakness following the Brexit vote.
The squeeze on household finances caused by rising inflation is flagged by Strathclyde University’s Fraser of Allander Institute in its latest quarterly commentary, published today.
Contemplating the outlook, Fraser of Allander says: “Rising inflation, coupled with moderation in pay growth as employment levels remain flat, is likely to mean materially weaker real income growth over the coming few years: another reason why consumer spending is likely to slow.”
Rising food costs also played a key part in the jump in annual UK consumer prices index (CPI) inflation from 1.8 per cent in January to 2.3 per cent in February, significantly above the two per cent target set for the Bank by the Treasury. The UK supermarket sector has highlighted a rise in imported food costs arising from the weaker pound.
Figures published last week by the Office for National Statistics put annual pay growth in the UK in the three months to January at
2.2 per cent.
Scottish Chambers of Commerce, in the wake of yesterday’s ONS data showing inflation surging above the target, urged the Bank of England to keep interest rates low for now. On the back of the Brexit vote last June, the Bank cut UK base rates to a fresh record low of 0.25 per cent in August.
Liz Cameron, chief executive of Scottish Chambers, said: “As inflation pushes above the Government target, we would ask the Bank of England to remain cautious and keep interest rates low for the time being.”
Frances O’Grady, general
secretary of the Trades Union Congress, said: “Working people across the UK are now facing the double blow of rising prices and slower wage growth.
“If the Government doesn’t wake up, we risk sleepwalking into another living standards crisis.”
She added: “It’s time to scrap the pay restrictions hitting hard-working teachers, nurses and other public servants.”
Fraser of Allander is forecasting the Scottish economy will grow by 1.2 per cent this year. It predicts expansion of 1.3 per cent in 2018 and growth of 1.4 per cent in 2019. It noted these projections were “broadly unchanged” from its forecasts in December.
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