The UK inflation rate hit a joint four-year high in August after being pushed up by rising petrol, clothes and food prices.
The Office for National Statistics said that inflation rose by 2.9% in August, up from 2.6% in July – equalling the four-year high hit in May this year.
The rate is higher than what many analysts were forecasting and could put extra pressure on the Bank of England’s Monetary Policy Committee to increase interest rates when it meets later on this week.
Paul Hollingworth, UK economist at Capital Economics, said the figures would provide further ammunition to the members of the MPC who favour a rise in interest rates.
“However, we don’t think the rise in CPI inflation has much further to run.
“Indeed, we expect it to peak at 3.1% in October, before dropping back next year as the impact of the pound’s fall starts to fade.”
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the figure increased the risk that MPC would increase its rhetoric regarding future interest rate rises.
“We still think, however, that the chances of a rate rise this year are remote. Domestically-generated inflation is subdued, inflation expectations have remained well-anchored and GDP growth is too weak to warrant higher rates,” he added.
Rising prices for clothing and motor fuels were the main contributors to the increase in the rate.
Clothing and footwear rose in price by 4.6% over the year, while prices went up of 2.4% between July and August, mainly due to an upswing in the price of women’s clothing.
Petrol prices have risen by 1.8 pence per litre reversing the trend from recent months.
Mike Prestwood, head of Inflation at the ONS, said: “Clothing prices rising faster than last year, along with a hike in the cost of petrol, helped nudge inflation upwards. Conversely, these effects were partially offset by airfares, which rose more slowly than during last year’s summer holidays.
“The costs of raw materials and goods leaving factories also increased slightly, mainly due to oil and fuel prices.”
The ONS said the depreciation of sterling following the EU referendum was continuing to push up prices.
Following the EU referendum the value of sterling plummeted. This pushed up import costs, which in turn boosted consumer prices and caused inflation to increase.
UK inflation is forecast to rise further in the coming months, peaking around 3% in October before gradually dropping to 2.2% over the three-year forecast.
Bank of England governor Mark Carney has hinted a rate rise could be on the cards to keep inflation from spiralling out of control.
Since inflation hit a four-year-high of 2.9% in May – well above the Bank’s target of 2% – many economists are predicting a rise in the base rate sooner rather than later.
If the Bank decides to hike interest rates, the knock on effect could see lenders raise mortgage rates accordingly.
However, despite the possibility of a rate hike to 0.50%, many experts expect rates to stay low and any rise to be gentle.
