Inflation rose unexpectedly to 2.7% in April, up from 2.3% in March, despite economists’ inflated expectations that it would jump up around 2.6%. As it continues to rise, earnings and living standards will tighten more and real wages will fall further. 

The Office for National Statistics (ONS), the UK’s largest independent statistical institute, released its latest bulletin on UK consumer price inflation for April 2017. UK inflation hit the highest level in April since September 2013, while earnings including bonuses rose by 2.3% in the three months to February. The rise in inflation was caused by higher air fares, rising prices for clothing, vehicle excise duty and electricity. These were offset by a fall in motor fuel prices between March 2017 and April 2017.

The Bank of England (BoE) expects inflation to increase to just under 3% next year and then fall back to target in 2019, depending on a smooth Brexit.  According to economists, the inflation figures won’t put any pressure on the BoE to raise interest rates. The increase in inflation has been attributed to the weak pound after the UK referendum. Despite its recovery, the pound remains around 11% weaker against the dollar since the Brexit vote. 

As PwC’s senior economic adviser, Andrew Sentance, stressed, inflation will affect consumer spending and will slowdown economic growth: “Inflation has risen to its highest level since the autumn of 2013, and this is adding to the squeeze on consumer spending shown in the latest retail sales figures. We should expect this rise in inflation to continue as the impact of the weakness if the pound feeds through into higher prices for imported goods and services. Inflation is set to rise to around 3pc or higher in the months ahead - with prices likely to be rising faster than wages. The resulting squeeze on consumer spending will reinforce the slowdown in economic growth we are now seeing.”

How does inflation affect you?

Rising inflation affects salaries since pay rises are growing very slow in comparison to inflation and also has a significant impact on pensioners and savers. According to economist Ian Kernohan, “with wages still sluggish, despite the sharp fall in unemployment, growth in real wages is being squeezed.” Frances O’Grady, the Trade Union Congress (TUC) general secretary has called officials to create jobs and increase pay. She said: “The last thing Britain needs is another real wage slump. But rising prices are hammering pay packets. Working people are still £20 a week worse off, on average, than they were before the crash. That’s why living standards must be a key battleground at this election. All the parties need to explain how they’ll create better paid jobs, especially in the parts of the UK that need them most. And there needs to be a recognition across the political spectrum of the damage pay restrictions in the public sector are doing. Nurses shouldn’t have to use food banks to get by.”

For Elliott Silk, commercial director at life insurance company Sanlam, rising inflation will “damage retirees buying power and is set to take out a serious chunk of peoples’ nest eggs. Many don’t appreciate the true cost of inflation. For those who retired before 2010 and took out a fixed annuity, the cost can be staggering. As bills rise across the board, retirees on a fixed income begin to feel the inflation pinch. As we enter this period of increased inflation, one of the ways people can consider avoiding inflation eating away at their hard earned cash is to seek out alternative investment vehicles.”

How can you save money?

Hannah Maundrell, editor in chief of money.co.uk, said that the weak pound due to the Brexit vote has driven inflation higher. Brexit has affected the economy she argued, and added that the days of low inflation are gone. What awaits us now is the rise in the prices of goods and services: “Your household budget will be stretched as the cost of fuel, energy and anything that’s made overseas is creeping up. The cost of your supermarket shop is rising too so you must act now to protect yourself from future struggles.”

She recommends four ways to protect yourself: 

You should be on a fixed rate energy tariff. This means that you can fix how much you pay for a specific period of time, so that you will pay the same amount of money for gas and electricity, despite any price changes in the market within that period. 

Your savings should earn a higher interest rate than the rate of inflation.

Research alternatives and choices when it comes to fuel and food, so you don’t pay more than you need to.

Cut your mortgage repayments so that you get a fixed rate deal if you are on a standard variable rate (SVR). An SVR is a mortgage interest rate that is variable: payments can go up or down depending on changes in interest rates. SVRs are expensive because your mortgage lender may increase or decrease their standard variable rate at any time. Instead, having the security of a fixed rate will definitely save you money.