Interest rates expected to be held at 0.25% after inflation reaches 2.9%

Interest rates expected to be held at 0.25% after inflation reaches 2.9%

I expect no change to rates. The impact of the fall in the pound since last year's Brexit vote made itself felt as the higher costs of foreign holidays and of imported computer games and equipment helped push up consumer prices by 2.9pc year-on-year.

Inflation unexpectedly hit 2.9 percent last month, which was the highest level since June 2013.

In response to the latest figures, the Pound dropped back, losing earlier gains in London trading on hopes of a softer Brexit after last week's inconclusive United Kingdom 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.

Prices are rising at their fastest pace in nearly four years.

Credit card firm Visa said on Monday it saw the first annual fall in spending by consumers in almost four years in May.

Households have also been trading down - recent data on the grocery sector showed shoppers are turning in increasing numbers to discounters, with Aldi and Lidl pushing their combined share of the market to a record 15 per cent.

Consumer spending, the main driver of the UK's economic growth, has held up remarkably well since the shock referendum result but the squeeze on earnings is clearly starting to take its toll.

The statistical office had revised down its first quarter GDP growth to 0.2% from 0.3%.

Britain is already in the grip of the longest period of falling real pay in more than two centuries, according to the Resolution think-tank.

But it also adds to pressure on the Bank of England, even if it does not raise interest rates over the next three years, to hold off with any more injections of cash into the economy for fear further weakness of the pound and higher inflation.

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.

There's no expectation of a rate rise this time round.

The central bank is widely expected to keep interest rates at their record low of 0.25 per cent when it makes its latest policy announcement on Thursday.

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

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