This article is more than 2 years old

This article is more than 2 years old

UK inflation unexpectedly rose to the highest level in six months in August, pushed up by the rising cost of items including theatre tickets, package holidays, and high street shops launching their new-season autumn clothing ranges.

The Office for National Statistics said the consumer price index (CPI) jumped to 2.7% last month from 2.5% in July, confounding economists’ forecasts for the rate to fall to 2.4%.

The surprise increase will prove unwelcome for hard-pressed British households, which had finally begun to see wages rising above inflation earlier this year, following a protracted squeeze on living standards triggered by the Brexit vote. Although workers’ annual pay rises have gradually begun increasing, they remain perilously close to inflation.

Frances O’Grady, the general secretary of the TUC, said: “The pay squeeze is tightening again but the government is doing nothing to get wages rising faster.”

The latest labour market figures, which lag inflation data by a month, showed total pay including bonuses rose by 2.9% in the three months to July. Regular pay growth was 2.6%, suggesting real wages could be falling for many workers in Britain.

Mike Jakeman, a senior economist at PwC, said: “A faster rate of inflation is likely to reduce the narrow gap between wages and inflation further, meaning that the rise in living standards for workers is likely to have been only marginal.”

The ONS said the biggest contribution to the increased cost of living came from the fastest annual rise for the cost of recreation and culture since January 2010, fuelled by the rising price of package holidays, theatre tickets, toys and computer games.

Q&A What is inflation and why does it matter? Show Hide Inflation is when prices rise. Deflation is the opposite – price decreases over time – but inflation is far more common. If inflation is 10%, then a £50 pair of shoes will cost £55 in a year's time and £60.50 a year after that. Inflation eats away at the value of wages and savings – if you earn 10% on your savings but inflation is 10%, the real rate of interest on your pot is actually 0%. A relatively new phenomenon, inflation has become a real worry for governments since the 1960s. As a rule of thumb, times of high inflation are good for borrowers and bad for investors. Mortgages are a good example of how borrowing can be advantageous – annual inflation of 10% over seven years halves the real value of a mortgage. On the other hand, pensioners, who depend on a fixed income, watch the value of their assets erode. The government's preferred measure of inflation, and the one the Bank of England takes into account when setting interest rates, is the consumer price index (CPI). The retail prices index (RPI) is often used in wage negotiations.

Clothing launched by high street shops for the autumn season also had an impact, with the average price of clothing and footwear increasing by 3.1%, with women’s and children’s items increasing most.

Although petrol prices continued to climb, rising by 1.4% between July and August, the rise was lower than a 1.8% increase experienced over the same period a year ago, providing a small downward contribution to the inflation rate.

Some economist said the latest uptick for inflation could be temporary – particularly as the uptick was driven by large increases from relatively few items. Inflation has also been gradually falling this year as the impact from the post-EU referendum drop in sterling begins to fade.

The Bank of England has, however, expressed concern that inflation remains above the 2% target set by the government, fuelling its decision to raise interest rates last month above the emergency level introduced after the financial crisis for the first time.

Annual house price growth across the country slowed to the slowest rate for almost five years in July, hitting 3.1% from a rate of 3.2% a month earlier, fuelled by falling prices in the London property market. The average price of a home in the capital fell by 0.7% over the course of the year to July, extending a decline of 0.3% in the year to June.

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Despite falling valuations in London, house prices remain more than double the UK average of £231,000 in July. The north-east of England remained the region with the lowest average house prices, at £132,000.

Dan Tomlinson, a policy analyst at the Resolution Foundation, said the slowing growth in house prices should not automatically point towards easing cost of living pressures across the UK. “This slowdown is driven almost entirely by trends in London and the south-east. House price rises are still outpacing wage growth across many other parts of the country,” he said.

The north-west showed the highest annual growth rate in the ONS figures, with prices rising by 5.6% in the year to July. Prices in the south-west and West Midlands also rose above the rate of inflation and workers’ pay growth at 4.4%.