United Kingdom inflation jumps again in May, tightening squeeze on consumers

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The year-on-year gain in the CPI was still larger than the 1.6 percent average annual increase over the past 10 years.

Over the past 12 months, consumer prices are up 1.9 percent while core inflation has risen 1.7 percent.

"The further increase in inflation - to its highest rate since June 2013 - primarily reflects retailers passing on higher import prices to consumers in earnest", said Samuel Tombs, the chief United Kingdom economist at Pantheon Macroeconomics.

A sharper than expected rise in inflation will heighten fears that consumers will rein in spending in the coming months as real wages fall.

The ONS said one of the main drivers for inflation in May was the increased cost of package holidays overseas for British tourists who have to pay more for their euros and dollars.

The increase in the Consumer Price Index (CPI) measure of inflation left it at its highest level since June 2013.

Another big push on prices came from computer games and equipment, which are typically imported and therefore reflect the diminished buying power of sterling since the Brexit vote.

Consumers may further retrench after this month's snap election saw Prime Minister Theresa May lose her parliamentary majority, adding to uncertainty surrounding Brexit negotiations.

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Credit card firm Visa (Xetra: A0NC7B - news) said on Monday that it saw the first annual spending by consumers in almost four years in May.

Underlying inflation slowed marginally to 1.9 percent in May from 2.0 percent in the prior month.

Meanwhile separate figures showed house prices also on the up, increasing 5.6% in the year to April - up from 4.5% in the year to March.

Despite the sharp rise in prices, the Bank of England is widely expected to keep interest rates at their record low of 0.25 per cent when it announces its latest monetary policy decision on Thursday.

Input prices fell by 1.3 per cent in month-on-month terms in May, taking the yearly rate of price growth down to 11.6 per cent from a downwardly revised 15.6 per cent in April.

"It won't stop the Fed from hiking interest rates later today, but it increases the downside risks to our forecast that there will be a further two rate hikes in the second half of this year", he said in a research note. Output-price inflation held steady at 3.6 percent.

Core inflation, which excludes energy and food, rose a slight 0.1 percent in May. Food prices rose for a fifth straight month.

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