UK inflation rate rises to 0.5% after increases in air fare and the cost of petrol

Experts think UK CPI inflation will hit 3% in 2017

The average price of a basket of goods increased 0.4 per cent in June

Inflation, measured by the consumer price index, rose to 0.5 per cent in June after being stable at 0.3 per cent in May, according to the Office for National Statistics.

This means that a basket of goods and services that would have cost £100.00 in June 2015 cost £100.50 in June 2016. The data was gathered before the EU referendum happened.

Core inflation, which measures the consumer price index minus energy and food prices, was up for the first time since March at 1.4 per cent, from 1.2 per cent previously.

Commenters heralded the breakaway as the start of rising inflation fuelled by the rising cost of imports, raw materials and labour in the UK. Some said that inflation would hit 3 per cent by 2017.

Petrol prices rose 3.2 per cent between May and June 2016, compared to 3.3 per cent between April and May 2016. The cost of airline travel also rose. Both are connected to the rising price of diesel and gas motor oil.

CPI can have a knock on effect on when the Bank of England decides to raise interest rates. In inflation falls, the Bank of England could decide to bring forward the timing of the interest rate rise to stop a spiralling downwards trend in prices, leading to deflation.

Samuel Tombs, analyst at Pantheon Macro, said that inflation should rise again above 1 per cent in December and that a recovery will gain momentum in 2017.

“Sterling’s sharp depreciation will have its peak impact on inflation mid-way through 2017,” Tombs said. “Most inflation forecasts usually underestimate sterling’s impact and put too much weight on labour market slack.”

The value of sterling has depreciated sharply since the UK voted to leave the EU on June 23.

Sterling dipped below $1.30 for the first time since 1985 in the second week after the European referendum, but has since rebounded to trade around $1.32 against the dollar on Tuesday.

Some analysts are convinced the pound still has further to fall, with some predicting lows of $1.20 against the dollar in the next three months.

Looking to beat inflation? Click here to use an inflation calculator, provided by Independent Partner, Hargreaves Lansdown