The cost of transport, petrol, food products and computer games pushed UK consumer price inflation (CPI) up from 2.4% in June, according to data from the Office for National Statistics (ONS).
This marks the first rise of 2018 and is the 18th consecutive month CPI has overshot the government’s 2% target.
Figures published earlier this week show wage growth has fallen to a nine-month low of 2.4%, meaning UK workers are now failing to make more than the rise in prices each month.
“This is squeezing households and will in turn have a knock-on effect on consumer spending and the UK’s economic growth,” said Laura Suter, personal finance analyst at investment platform AJ Bell.
The pinch point
Households were already feeling the pinch from the Bank of England’s decision to raise interest rates this month, which saw many banks increase mortgage rates, but fail to pass on the hike to savers.
Ed Monk, associate director for personal investing at Fidelity International, said: “While the latest economic data doesn’t make for good reading, hopefully it will spur on more households to start seeking real returns on their savings, to mitigate the impact of higher mortgage payments and falling real wages. The best avenue for this is the stock market and for anyone unsure about the potential benefits, our calculations show that if you had invested £20,000 into the FTSE All Share index over the past ten years you would now be left with £44,378.”
Suter added: “The high inflation figures continue to clobber savers who are in many cases losing money on their savings in real terms. No easy-access savings accounts pay anywhere near as much as inflation, and banks stubbornly refuse to pass on all of the interest rate hike announced by the Bank of England earlier this month.
“Cash savers can find better deals by using high interest current accounts or regular savings accounts, although these often have caps on balances and require the transfer of direct debits. However, a few minutes spent shopping around for a better deal can stop savers’ money being eaten away by inflation.”