Inflation increased to 2.5% in July, representing the first increase so far in 2018.
It is a move that puts the UK consumer under continued pressure at a time when savings rates remain low.
According to figures released from the Office for National Statistics (ONS), the Consumer Price Index (CPI) increased at annualised rate of 2.5% in July. This compares to a rate of 2.4%, which was recorded over the three previous months. The ONS’s alternative measure called CPIH, which includes housing costs, remained static at 2.3%.
This marks the first time that inflation has increased on an annualised basis since November of last year. Higher transport and fuel prices were largely responsible for the rise.
Separately, the ONS reported that house prices are rising at their slowest pace in close to five years. House price inflation fell to 3% in June, down from 3.5% in May, suggesting that the UK’s planned exit from the European Union has hit sentiment.
The Bank of England cautiously raised interest rates from 0.5% to 0.75% on 2 August on the back of concerns that the UK’s low unemployment rate could create wage growth, which has the potential to feed through to headline inflation.
The CPI increase in July marks the eighteenth consecutive month that inflation has exceeded the Bank of England’s target of 2%.
Laura Suter, personal finance analyst at investment platform AJ Bell, comments: “Coupled with this week’s wage inflation figures, which slid to a nine-month low at 2.4% including bonuses, the UK workforce is now failing to make more than the rise in prices each month. This is squeezing households and will in turn have a knock-on effect on consumer spending and the UK’s economic growth.”
Alistair Wilson, head of retail platform strategy at Zurich, adds: “The current best instant access savings account offers a rate of 1.4%, so the base rate would need to rise by at least 0.9% to help savers to beat inflation. And even so, it could take months before banks actually pass the benefits on.
Ms Suter adds: “The high inflation figures continue to clobber savers who are in many cases losing money on their savings in real terms. No easy-access savings accounts pay anywhere near as much as inflation, and banks stubbornly refuse to pass on all of the interest rate hike announced by the Bank of England earlier this month.
“Cash savers can find better deals by using high interest current accounts or regular savings accounts, although these often have caps on balances and require the transfer of direct debits. However, a few minutes spent shopping around for a better deal can stop savers’ money being eaten away by inflation.”
Check the Moneywise best buy guides for the top savings rates for your cash.