SCOTTISH Chambers of Commerce warned of “growing concerns” over businesses’ ability to contain rising costs and a threat to consumer demand, after figures yesterday revealed annual UK inflation had leapt to 2.7 per cent in April.
The jump in annual consumer prices index inflation, from 2.3 per cent in March, was even greater than that forecast by economists and took the rate to the highest since September 2013. Annual CPI inflation for April had been forecast to come in at 2.6 per cent.
Annual CPI inflation has surged from just 0.3 per cent last May, ahead of the Brexit vote, as sterling’s plunge in the wake of the European Union referendum result has driven prices higher.
And inflation is now significantly ahead of annual average earnings growth, on the basis of the latest available figures, signalling household incomes are once again falling in real terms.
Howard Archer, chief UK economist at IHS Markit, highlighted the fact that the latest official figures showed annual average earnings growth was 2.3 per cent in the three months to February. Excluding bonuses, annual earnings growth was just 2.2 per cent.
Yesterday’s inflation figures from the Office for National Statistics show clothing prices jumped 1.1 per cent between March and April, in contrast to a 0.4 per cent fall a year earlier.
Electricity prices surged by 2.5 per cent between March and April, and a 3.8 per cent month-on-month jump in council tax was the sharpest since 2007.
Air fares leapt by 18.6 per cent month-on-month. The ONS cited the usual pattern of rising air fares around Easter, which fell in April this year but in March 2016.
Scottish Chambers flagged the inflationary squeeze on household incomes.
Chief executive Liz Cameron said: “Whilst part of the reason for this latest increase in inflation might be due to the timing of Easter and the consequent impact on the cost of flying, the fact remains that there are continued upward pressures on prices from a range of sources and the Bank of England last week said that it expected inflation to continue upwards to almost three per cent later in the year.”
The target for annual inflation is two per cent.
Ms Cameron said of inflation surge: “The impact on Scottish business and the economy is two-fold. Rising prices impact on businesses’ costs and their ability to invest and create jobs, whilst weakening real incomes could depress consumer spending, which has been the strongest driver of economic growth in Scotland over the past few years.”
She added: “These challenges, coupled with ongoing political uncertainty, represent a risk for the Scottish economy, which our politicians must respond to. With a General Election campaign in full swing, politicians...must remember that it is Scotland’s businesses that are the creators of jobs, wealth and growth in our economy.”
Mr Archer said: “The painful squeeze on consumers intensified in April. The Bank of England will not like seeing inflation at 2.7 per cent but April’s jump...in itself does not materially change the outlook for interest rates.”
Base rates are at a record low of 0.25 per cent.
Royal Bank of Scotland chief economist Stephen Boyle said: "Consumers’ spending will be under pressure, especially for discretionary items like leisure. Weaker consumption means slower growth."
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