16 May 2017

UK’s Inflation – Highest in Four Years

The UK’s inflation has reached the highest level since 2013, surpassing the analysts’ predictions. According to the report of the Office for National Statistics (ONS), the inflation rate in April is 2.7% up from 2.3% in March. The preliminary analysis was setting the level between 2.4% and 2.6%.

The high inflation rate is mainly due to the late Easter in the UK. The holiday caused significant rise of the air tickets ‘costs. Additionally, there was increase in the prices of the consumer goods (clothing, food) and electricity. Since 1st of April, the Government also raised the so-called Vehicle Excise Duty (VED), a tax, paid according to the CO2 emissions, released by the vehicles in motion. Fortunately, the fall of the petrol and diesel prices balanced off the surging consumer goods’ prices.

The four holidays around Easter are always preferred time for spring break and travelling for many UK citizens. According to the ONS report, the flight costs around Easter this year were 18.6% higher than the prices around the holiday last year (27th March). However, that didn’t stop Britons from travelling. Another ONS report revealed that only in the first months of 2017, UK residents made 4% more holiday visits abroad, compared to the same period last year.

Still, according to the Bank of England (BoE), the coming months will be “a more challenging time for British households”. The BoE, warned in its report a week ago that the inflation’s rate will continue to rise, reaching nearly 3% towards the end of the year. The bank expects continuous shrink of the consumer spending as the prices are going up but the wages will fall or remain flat. The last ONS report, observing the first three months to February, stated 2.3% rose at annual rate payments including bonuses.

Save or play?

As it is with every increasing inflation, people’s saving accounts are among the firs to feel its demolishing powers. Therefore, many experts believe that UK residents will probably look for alternatives to preserve their incomes. According to leading investment companies, currently buying stock and shares in Isa companies offers better returns than having an Isa. Isa or Individual Savings Account, is the current most popular way among the British residents to save money. It allows to save or invest money without paying tax on the interest or on investment returns received and in long term is “a reasonable goal to give the pot time to grow”. However according to the investments group Moneyfacts “the average return on cash Isas over the past year was just 0.97 per cent, while over the same period the average stocks and shares Isa returned growth of 16.5 per cent.”

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