UK Inflation Fastest Since 2013

By Wiktor Szary and Jason Douglas Features Dow Jones Newswires

U.K. consumer prices rose at the fastest pace in over three years, data showed, suggesting Britons are facing a living-standards squeeze as the country heads into a general election and begins its exit from the European Union.

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Annual inflation in the U.K. stood at 2.7% in April, up from 2.3% in March, the Office for National Statistics said Tuesday, the fastest rate of inflation since September 2013. This was in line with a Wall Street Journal forecast.

Compared with March, prices rose 0.5%, slightly above market expectations.

U.K. inflation began its ascent after Britain's vote to leave the EU last year, spurred by the pound's steep post-referendum depreciation. But it also reflects a broader global trend of inflation returning after a long spell of feeble price growth that pushed central banks toward evermore radical stimulus measures.

Price growth in April was driven largely by Easter-linked seasonal fluctuations in airfare prices, as well as rising prices of clothing, the ONS said.

April marks the third consecutive month of above-target inflation, with prices now growing at roughly the same pace as British workers' wages. This suggests that the U.K. economy, which relies heavily on domestic demand, may be in for a slowdown.

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This would come at an awkward time for Prime Minister Theresa May, who in March began the process of extricating the country from the EU. Seeking to strengthen her hand in the upcoming negotiations with Brussels, Mrs. May called a general election for June 8, with polls suggesting she is likely to boost her majority.

But the squeeze on Britons' wallets could potentially play into the hands of the main opposition Labour Party, which has sought to focus on living standards in the campaign.

The U.K. economy slowed sharply already in the first quarter of the year, preliminary data showed, as consumers reined in their spending.

The central bank foresees annual inflation peaking in 2017 at 2.8%--well in excess of its 2% target--before easing off in 2018. Officials say the surge in price growth is being driven primarily by a weakened pound and that this effect will eventually fade.

Last week, officials held the central bank's benchmark interest rate steady at 0.25% and signaled there was no rush to raise borrowing costs from record lows, despite above-target inflation.

They did say, though, that interest rates might need to rise more quickly than the glacial pace expected by investors, who doubt the central bank will move until well into 2019.

Write to Wiktor Szary at Wiktor.Szary@wsj.com and Jason Douglas at Jason.Douglas@wsj.com

(END) Dow Jones Newswires

May 16, 2017 04:57 ET (08:57 GMT)