July’s UK Inflation Index 13-Month High Following Brexit Referendum

The consumer prices in United Kingdom exceeded forecasts last month and resulted with raising the inflation to the highest level in more than a year.

The five-year break-even inflation rate of UK jumped 3 basis points to 2.587 per cent, breaking thirteen months record.

Following the Brexit referendum the UK inflation expectations have accelerated amid widespread anticipation the sterling may collapse and lead to price rises.

July was the first full month following UK’s vote for leaving European Union (EU) and rise in inflation expectations came from it, reaching 0.6 per cent. In June it was 0.5 per cent.

The expectation of Bank of England is the inflation to overshoot the 2 per cent target in next year. However, policymakers will be keeping interest rates low to meet the target.

Berenberg senior UK economist Kallum Pickering said, “Looking far ahead to the post-EU UK, the outlook for inflation becomes highly uncertain.”

He added inflation will simply be the product of demand and supply conditions in the long run and limited access to single market could bring down investment, trade as well as immigration. In the long run this could hurt supply potential of the economy.

Experts believe the Brexit effect may not be of long-term in terms of inflammation and interst rates could be increased in long run.

Samuel Tombs at Pantheon Macroeconomics, said: “Sterling’s sharp depreciation is entirely responsible for the pick-up in CPI inflation in July.”