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UK inflation: the rises and falls

Cost of living eases but prices continue to increase faster than wages

UK inflation fell as the cost of clothing, footwear and leisure activities decreased

UK inflation fell as the cost of clothing, footwear and leisure activities decreased

UK inflation increased by 2.8% in the year to July 2013, according to new figures from the Office for National Statistics (ONS), which represents a fall from the 2.9% recorded in the 12 months to June this year.

The Consumer Prices Index (CPI) shows that the cost of living eased from the 14-month high recorded in July, mainly as a result of a fall in airfares, as well as downward price movements for recreation, culture, clothing and footwear.

Though a rise in petrol and diesel prices partially offset the fall, the CPI was largely in line with other market indicators, with the CPIH down from 2.7% in June to 2.5% in July, the RPIJ falling from 2.7% to 2.6%, and the Retail Prices Index (RPI) decreasing from 3.3% to 3.1%.

Good and bad news

For households whose budgets are currently being stretched further than ever, the easing pressure of the cost of living will offer some relief, though this has been tempered by the fact that prices continue to rise faster than wages.

Commenting on the stats, Cathy Jamieson, Labour’s shadow economic secretary to the Treasury, said wage growth lingering far below the rate of inflation is denting consumer spending, despite positive recent news on the economy.

“The government is making things worse, not better, for families. Alongside declining real wages, tax rises and cuts to tax credits are hitting those on middle and low incomes while millionaires have been given a huge tax cut,” she added.

In spite of this, industry reaction has been largely neutral, with the majority of analysts noting that inflation is largely in line with expectations, and that the new governor of the Bank of England, Mark Carney, appears to have things under control.

Howard Archer, from IHS Global Insight, said consumer price inflation may reach 3% in the near term, due to difficult base effects and recently firmer oil prices, but this should start heading gradually downward towards the end of the year.

“Our best bet is that consumer price inflation will dip to 2.7% by the end of 2013 and then trend down further to end 2014 just above 2%,” he added.

Upward movement

The ONS figures were also accompanied by separate industry statistics from the Royal Institution of Chartered Surveyors (Rics), which showed that house prices are rising at their fastest since November 2006 across the UK.

The data revealed that home buyer activity is currently increasing the fastest in parts of the UK where prices have been the most depressed, though the rising cost of buying a home will continue to pose a problem for people whose wage growth remains below the rate of inflation.

With broad salary increases and a drop in inflation unlikely in the near term, it seems that there is some way to go until the country – and its consumers – is fully out of the woods.