British Inflation Rate Rises to 4-Year High as Brexit Bites

"So they are all factors that factor into the equation, but once there is a bit more clarity on the government and Brexit negotiations, then we expect the pound to strengthen a little bit, but until then, there could still be a bit of volatility".

The inflation rate in Britain has risen to its highest level in four years, hitting 2.9 percent in May from 2.7 percent in April.

The pound tumbled Friday to a seven-week low at $1.2636 in the wake of the election result.

The pound to dollar exchange rate rose this afternoon after data showed retail sales declined and Consumer Price Index (CPI) was slower than forecast in May. The overall drop in spending was 0.8 per cent year-on-year, the first fall since September 2013.

British workers' earnings after inflation contracted at the fastest pace since 2014 in the three months to April, underscoring the growing Brexit squeeze facing many households, official data showed on Wednesday.

While a joint record-high proportion of Britons are in work, the fall in real-terms wage growth pointed to tougher times ahead for consumers, the main drivers of economic growth.

This is because although raising interest rates would ordinarily be considered a sensible strategy to get inflation down - and inflation is now running at 2.9% which is considerably higher than the Bank of England's 2% inflation target - the economy is simply too fragile right now for Committee members to risk putting rates up. The euro has also been buoyed by the strong majority expected for the party of French President Emmanuel Macron after the first round of parliamentary elections yesterday.

The Bank of England (BoE) has highlighted stubbornly low wage growth since the 2008 financial crisis as one reason for keeping United Kingdom interest rates low.

"With the United Kingdom economy so fragile and the political environment far from certain, the Bank of England (BoE) will need to tread carefully and weigh up what can be done to maintain economic support - without driving the Pound lower and still stoking further inflationary pressures".

Britain's economy has been resilient to political uncertainty since last June's Brexit vote.

  • Joanne Flowers