Fresh evidence of the impact of the post-Brexit depreciation in the value of the pound will be revealed on Tuesday with the release of the latest set of official inflation figures.
City analysts believe there will have been a pause in June in the steady increase in the cost of living to 2.9% in the 12 months since the EU referendum, but most believe the respite will prove temporary.
And with annual earnings growth at 2%, the release of the latest inflation data from the Office for National Statistics is likely to prompt renewed speculation about a slowdown in consumer demand caused by prices rising faster than wages.
Inflation was running at 0.6% when the UK voted to leave the EU in June 2016 but it has risen subsequently as a result of higher oil prices and dearer imports caused by the 12% decline in the value of the pound over the past 12 months.
That has taken the annual inflation rate to its highest level in four years and close to the level where Mark Carney, the governor of the Bank of England, would be forced to write a letter to the chancellor, Philip Hammond, explaining why Threadneedle Street had failed to keep the annual increase in the cost of living to within one percentage point of the government’s 2% target.
Consumer spending helped keep the economy expanding strongly in the six months after the Brexit vote, but the growth rate slipped to 0.2% in the first three months of 2017.
Samuel Tombs, a UK economist at Pantheon Macroeconomics, said inflation was likely to peak at 3.2% later in the year even though the July figure would show no change.
Tombs said the recent fall in global oil prices would help motorists by reducing the cost of motoring, while smaller increases in air fares, and toys and games in June 2017 than in the same month a year earlier would also dampen inflationary pressure.
“Food inflation, however, is continuing to grind higher in response to sterling’s collapse,” Tombs said.
Victoria Clarke, UK analyst at Investec, said…