The Consumer Price Index (CPI) – a measure of inflation – rose from 1.5% in May this year to 1.9% in June, closer to the Bank of England (BoE)’s 2% target. The largest contributions to this were rises in the price of clothing, food and non-alcoholic drinks and air transport.
“The rise in inflation was seen as a positive mark for the UK economy, reflected by an initial jump in sterling, particularly against the dollar,” says Carl Hasty, Director of international payments specialist Smart Currency Business.
“This will fan the flames of speculation regarding an interest rate hike. The question is whether the BoE will raise this sooner than expected.
“Although this is positive news, we need to consider the question from the same angle that the BoE is viewing it from. It has 18 economic indicators influencing policy that guide this decision, so we have to take a step back and look at how other aspects of the economy are doing.
“The underlying narrative is that the UK economy is growing from strength to strength. Despite this, we must not forget that UK businesses still require support to help them save money and finance growth, especially if rates do rise sooner than expected.”