Fri, 06 Aug 2021

UK inflation soars to 2.1 pct in May 2021

Xinhua
17 Jun 2021, 02:05 GMT+10

LONDON, June 16 (Xinhua) -- Britain's Consumer Prices Index (CPI) 12-month rate rose by 2.1 percent in the 12 months to May 2021, above the Bank of England's 2 percent inflation target for the first time since July 2019, the British Office for National Statistics (ONS) said Wednesday.

The CPI including owner occupiers' housing costs (CPIH) also increased by 2.1 percent in the 12 months to May, up from 1.6 percent to April, said the ONS.

On a monthly basis, the CPIH rose by 0.5 percent in May. Rising prices for clothing, motor fuel, recreational goods (particularly games and recording media), and meals and drinks consumed out resulted in the largest upward contributions to the change in the CPIH 12-month inflation rate between April and May, said the ONS.

"Inflation rates at this time are influenced by the effects of the first coronavirus (COVID-19) lockdown in spring 2020," said the ONS.

James Smith, a developed markets economist at financial services firm ING, said businesses' continuous reopening led to "a surprise jump" in core inflation, and "it's pretty clear reading the details that there is a reopening effect, with the likes of restaurant and hotel prices increasing on the month."

Smith forecast the inflation rate is expected to continue to grow by the end of year, but likely to ease through 2022.

"Headline CPI is likely to be at 2.5 percent, or perhaps slightly above, by year-end...but for the Bank of England, the fact that inflation is likely to ease through 2022 suggests less imminent pressure to move towards tightening," said Smith.

Meanwhile Paul Dales, an economist at the London-based economic analysis firm Capital Economics, gave a higher prediction for inflation rate later this year.

"With businesses having raised their prices by more than we expected once they reopened after COVID-19 lockdowns ended, we now think CPI inflation will rise to a peak of 2.9 percent later this year compared to 2.6 percent previously," Dales said.

"And the further surge in costs earlier in the price pipeline has made us a bit less confident that CPI inflation will drop back below 2.0 percent next year," Dales added.

Despite the uptick of the inflation, Smith reckoned that it is "probably not a huge Bank of England concern...the question as ever for the Bank of England is whether all of this will last, and we're still inclined to say that much of it won't."

"It's worth saying that core inflation is unlikely to go as far as headline this year, while the latter will also likely be back to target by around this time next year," he said.

"For the time being, we're still penciling in the first rate hike in early 2023," Smith added.

British Prime Minister Boris Johnson on Monday confirmed a four-week delay to the lifting of all COVID-19 restrictions in England beyond June 21, citing the risk of highly transmissible Delta variant, which was first identified in India.

The easing of COVID-19 restrictions in Scotland is likely to be delayed by three weeks amid a surge of coronavirus cases, Scotland's First Minister Nicola Sturgeon said Tuesday.

To bring life back to normal, countries such as Britain, China, Russia, the United States as well as the European Union have been racing against time to roll out coronavirus vaccines.

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