U.K. Households Squeezed as Inflation Jumps in May

Consumer prices in the U.K. rose in May at the fastest annual rate for almost four years, intensifying a squeeze on households just as the country faces a prolonged spell of political uncertainty.

Annual inflation in the U.K. accelerated in May to 2.9%, the Office for National Statistics said Tuesday, the fastest rate of price-growth since June 2013.

Economists polled by The Wall Street Journal had been expecting inflation to hold steady at April's 2.7% rate.

Renewed pressure on the economy from rising inflation marks another big challenge for the U.K.'s embattled Prime Minister, Theresa May, who gambled on strengthening her authority with a snap election Thursday but came up short.

A poor campaign cost Mrs. May her Parliamentary majority, throwing her Brexit strategy and a host of other Conservative Party policies into flux. Her gamble has also raised questions about how long she can stay in office.

The Conservatives are on Tuesday hoping to formalize a loose alliance with Northern Ireland's Democratic Unionist Party that will keep them in power.

British consumers have been feeling the squeeze from rising prices since June's Brexit vote caused a sharp fall in the pound. Wage growth hasn't kept pace with inflation. The economy slowed in the first quarter as households retrenched.

Tackling this squeeze was a central economic issue in an election overshadowed by Brexit and twin terror attacks in Manchester and London.

The ONS said Tuesday the pickup in inflation in May was driven by rising prices for packaged vacations, toys and games and computer equipment. Clothing, footwear and household electricity prices also rose.

The Bank of England is expected to keep the U.K.'s benchmark interest rate steady this month when it announces its policy decision Thursday.

There were signs Tuesday that price pressures are gradually easing. The prices charged by companies at the factory gate rose only 0.1% on the month and the cost of firms' raw materials declined.

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

(END) Dow Jones Newswires

June 13, 2017 05:10 ET (09:10 GMT)