Consumer finances facing summer inflation squeeze

Squeezed consumer finances face heightened pressure this summer, with economists warning that inflation could reach 3.5 per cent, after official figures showed price rises remained stubbornly high last month.

The Office for National Statistics said the consumer prices index (CPI) held steady at 2.8 per cent in March as higher car insurance premiums offset weaker inflation for alcohol and fuel.

Investec economist Victoria Clarke said: “We see inflation ascending further from here to the mid-3 per cent range by mid-year, in time for Mark Carney’s arrival at the Bank of England.”

Although fuel prices remained on an upward trend, inflation eased at the pumps as petrol prices rose by 2.2p a litre, compared with 3.3p a year ago. Diesel, which had risen 2.6p a litre last March, increased 1.9p.

Inflation has remained above the UK government’s 2 per cent target since December 2009, pushed up in recent months by the weakness of the pound at the start of the year.

The figures came as the International Monetary Fund (IMF) slashed its forecast for UK economic growth this year to 0.7 per cent, down from its previous 1 per cent forecast, and cut 2014’s projection from 1.9 per cent to 1.5 per cent.

Stephen Gifford, the CBI’s economic director, said: “It’s not surprising that the IMF has lowered its forecast. Consumers are being squeezed by high inflation and low wage growth and business confidence remains unsettled, so the pace of growth is expected to be muted through 2013.”

Yesterday’s inflation figures were released ahead of today’s publication of minutes from the Bank of England’s latest monetary policy committee meeting, which are predicted to show that policymakers remained split over the merits of another round of quantitative easing.