UK inflation jumps to 4.5%
The official measure of inflation rose to 4.5% in August - up from 4.4% in July.
Meanwhile, the retail prices index (RPI), which includes council tax and mortgage payments, has gone up from 5% to 5.2%.
The rate is over double the Bank of England's target of 2%.
The Office for National Statistics (ONS) says a 3.7% increase in clothing and footwear costs between July and August is one of the main contributors towards higher inflation levels.
Housing and household costs have also gone up by 2%, thanks to soaring electricity and gas bills, rent increases and the cost of maintenance.
Problems for UK households
Kevin Mountford, head of banking at moneysupermarket.com, says high inflation is continuing to cause problems for UK households.
"The sharp sting of high inflation is not new to UK households, as consumers have battled with the rising cost of living over the last 12 months," he says.
"Energy hikes, the soaring price of petrol and the rising cost of everyday basics such as food, have hit households hard. Many workers also have to deal with pay freezes, meaning their incomes are actually dropping in real terms, it is no surprise many feel like their finances are either at, or rapidly approaching breaking point."
Inflation is still having an effect on savings. Basic-rate taxpayers need an account paying at least 5.63% to beat inflation and gain benefit in real terms from their savings, increasing to 7.5% for higher-rate taxpayers.
“Inflation continues to whittle away any hope of a decent return on the nation's savings," says Sylvia Waycot, spokesperson for Moneyfacts.
“This time last year basic rate taxpayers had a choice of 91 accounts to negate the effects of inflation, today there are just five and all are fixed-rate cash ISAs," she adds.
No accounts beat the RPI 5.2% measure of inflation.
Replaced as the official measure of inflation by the consumer prices index (CPI) in December 2003. Both the Retail Price Index and CPI are attempts to estimate inflation in the UK, but they come up with different values because there are slight differences in what goods and services they cover, and how they are calculated. Unlike the CPI, the RPI includes a measure of housing costs, such as mortgage interest payments, council tax, house depreciation and buildings insurance, so changes in the interest rates affect the RPI. If interest rates are cut, it will reduce mortgage interest payments, so the RPI will fall but not the CPI. The RPI is sometimes referred to as the “headline” rate of inflation and the CPI as the “underlying” rate.
Monetary Policy Committee
A committee designated by the Bank of England to regulate interest rates for the UK. The MPC attempts to keep the economy stable, and maintain the inflation target set by the government and aims to set rates with a view to keeping inflation at a certain level, and avoiding deflation. The MPC meets on the first Thursday of each month and discusses a variety of economics issues and constitutes nine members: the governor, the two deputy governors, the Bank’s chief economist, the executive director for markets and four external members appointed directly by the Chancellor.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.