By Ian McConnell

ANNUAL UK inflation surged by more than expected in June to its highest rate for nearly three years, fuelled by price rises for food, petrol, second-hand cars, clothing and footwear, and restaurant and café meals and drinks.

Figures published yesterday by the Office for National Statistics show annual UK consumer prices index inflation rose from 2.1% in May to 2.5% in June – its highest since August 2018. Inflation had surged in May to exceed the Bank of England’s 2% target. The June reading was higher than all forecasts in a poll of economists by Reuters, which had signalled a consensus expectation that annual CPI inflation would be 2.2% in June. Annual CPI inflation was only 0.4% in February.

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Martin Beck, senior economic adviser to the EY ITEM Club think-tank, said: “While there is likely to be a period where inflation is running well above the Bank’s 2% target, the EY ITEM Club remains sceptical about the idea that the UK is entering a new era of sustained higher inflation. Much of the impact of a stronger pound is still to pass through to consumer prices, the large amount of spare capacity will weigh on wage growth and margins, and inflation expectations remain well anchored. The institutions and labour and product markets which facilitated high inflation in the past are also lacking.”

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Laith Khalaf, financial analyst at stockbroker AJ Bell, said: “ now firmly above the Bank of England’s target. However we’re still stuck in inflationary limbo, where we can’t tell if rising prices are a statistical blip, or a more concerning and permanent feature of the global economic recovery.

“There is some balm for inflationary concerns in the sources of upward price pressure, which came from hitherto mothballed areas of consumer spending such as transport, clothing and hospitality. This supports the hypothesis that rising inflation is largely a function of comparing today’s open economy with last year’s closed shop.”

Mr Beck said: “Strong base effects, caused by a rise in prices last summer as the economy reopened after lockdown, are likely to mean that CPI inflation temporarily falls in July. But this will provide only a brief respite and the EY ITEM Club expects the CPI measure to climb again over the remainder of the year, reflecting a combination of base effects, the reversal of the VAT cut for the hospitality sector, and upward pressures on global goods prices caused by component shortages and supply-chain bottlenecks.”