UK inflation jumped to a four-year high of 2.9% in May, signalling a sustained fall in living standards as prices rose faster than wages.
The consumer prices index went up from 2.7% in April and has been steadily increasing since the Brexit vote a year ago, which triggered a sharp drop in the value of the pound and pushed up the cost of goods imported from abroad. Inflation was 0.3% in May 2016, a month before the EU referendum.
At 2.9%, inflation is higher than average year-on-year wage growth of 2.1% in the three months to March, putting pressure on household budgets. It is also well above the Bank of England’s 2% target. Economists had expected inflation to stay at 2.7%.
Philip Shaw, an economist at Investec, said inflation was likely to rise further in the coming months, as the weaker pound continues to feed through to higher shop prices.
“Our view is that inflation will rise steadily to a little above 3% by the summer,” he said. “However, should sterling resume an upward trend and energy prices slip further in US dollar terms, there is a chance that inflation remains below the 3% level.”