Inflation ticks up to 0.6% but big jump in ‘input’ prices for manufacturers

16th August 2016

The UK’s inflation rate hit 0.6% in July a 0.1% rise on the previous month. The increase has been attributed to the rising cost of alcoholic drinks, hotel rooms and fuel. The slight uptick may unnerve savers, who are seeing savings rates fall.

The Retail Prices Index (RPI) measure of inflation rose to 1.9% in July from 1.6% in June. Crucially although RPI has mostly been abandoned by the the Office for National Statistics it will be used to calculate regulated rail fares

The ONS report suggests that the fall in the value of the pound since the UK’s referendum vote to leave the EU had increased the cost of imports for manufacturers.

Input prices faced by manufacturers rose 4.3% in the year to July, compared with a fall of 0.5% in the year to June.

The most dramatic rises came in the cost of imported food materials, which rose 10.2%, and the price of imported metals, which rose 12.4%.

In addition, the price of goods leaving the factory gate were 0.3% higher than a year earlier, the first annual increase since June 2014.

Mike Prestwood, head of prices at the ONS said: “There is no obvious impact on today’s consumer prices figures following the EU referendum result, though the Producer Prices Index (PPI) suggests the fall in the exchange rate is beginning to push up import price faced by manufacturers,”.

Calum Bennie, savings expert at Scottish Friendly said: “July’s rise in inflation is likely to herald further rises in the cost of living as the price of imports increase following the fall in the pound post Brexit.  Clearly this is not good news for the pound in peoples’ pockets and makes life even more difficult for those looking to save for their financial future.

“We can expect a clearer view of the effects of Brexit on the economy over the next few months. In the meantime, with interest rates remaining low, stocks and shares ISAs provide an attractive alternative to cash savings, although risk is attached.”

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