Britain’s annual rate of consumer price inflation (CPI) hit 2.9% in June, the highest in 14 months and up from 2.7% in May. It has been above the Bank of England’s 2% target for 54 of the past 60 months. The latest unemployment data, however, suggested that the recovery is boosting the labour market. The unemployment rate stayed at 7.8%, but the claimant count fell at the fastest pace in three years. Car sales increased by an annual 13.4% in June. Everywhere else in Europe they fell.
What the commentators said
Workers and their families “are suffering the fiercest squeeze in decades”, said The Guardian. Factor in inflation and median wages have fallen by 10% since late 2008. And it’s not getting better: inflation is climbing almost three times faster than underlying annual average earnings, which are expanding by just 1%.
Several commentators have pointed out that with consumption accounting for about 60% of the economy, tepid household spending resulting from the squeeze on pay has been a key reason for the lacklustre recovery. And “there remains a very real risk that muted consumer spending could limit growth over the coming months”, said IHS Global Insight’s Howard Archer.
The situation may get worse, said Ian Campbell on Breakingviews. The recovery is gradually buoying inflation, with the number of British firms expecting to raise their prices at a two-year high. And Bank of England governor Mark Carney appears “tempted by novel forms of ‘sink the pound’ laxity”. But lowering the pound through looser monetary policy will just stoke inflation further. Carney’s “new-fangled policy guidance” risks snuffing out the recovery. “Something more old-fashioned” is in order: controlling inflation.