Rising cost of imports such as food and fuel since Brexit vote is pushing prices to rise at faster rate than anywhere in G7

This article is more than 2 years old

This article is more than 2 years old

The UK has the highest inflation rate among the world’s top economies, in the latest sign the Brexit vote is contributing to a squeeze on living standards.

The increased cost of importing food and fuel is pushing prices to rise at a faster rate than anywhere in the G7 group of leading global economies, according to the Organisation for Economic Co-operation and Development. The UK is only behind Turkey, Mexico and the eastern European states of Latvia and Estonia in the club of 35 developed nations.

The annual growth in prices in the UK jumped to 2.9% in August from 2.6% in July, equalling a four-year high in the consumer price index (CPI) reached in May earlier this year. That outstrips the average 2.2% growth in prices across the OECD for the same month.

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The UK ranked top for inflation among the G7, whose other members are the US, Canada, France, Germany, Italy and Japan. The rise in prices was also above the averages for the euro area, the wider European Union and the G20 nations.

Turkey had the highest inflation rate at 10.7%, followed by Mexico at 6.7%. Israel was the only country to record falling prices, at -0.1%. Major central banks around the world target an inflation rate of 2% to encourage their economies to expand at a sustainable pace.

The Paris-based organisation found energy price inflation accelerated to 5.9% in the year to August, compared with 3.7% in July. Food price inflation also rose, albeit at a slower pace, to 1.8% in August, compared with 1.7% in July.

Excluding food and energy, inflation was stable across the OECD nations at 1.8% for the fourth consecutive month.

The figures illustrate the UK’s reliance on imports, which have become costlier since the Brexit vote sparked sterling’s devaluation. The pound remains about 10% below its level immediately before the referendum.

Prices in non-food stores and online rose at the strongest annual growth rate since 1992 in August, although shoppers continued to spend against the forecasts of City economists. The Bank of England’s monetary policy committee estimates CPI will peak above 3% this month, before falling over the coming months.

Threadneedle Street is considering whether to raise interest rates for the first time in a decade from as early as next month. Raising the cost of borrowing may help to cut the rate of growth in prices, as it should curb the amount of money available in the economy to buy goods.

However, a rate rise also risks undermining economic growth by removing cheap money available to consumers and businesses. The Bank has been warned against raising interest rates amid weak signals for economic growth.

The OECD estimates France, Italy and Germany will grow faster than the UK amid uncertainty from Brexit, which is hitting consumer confidence and sapping business investment. The group of wealthy nations forecasts the UK’s GDP growth will drop from 1.6% this year to 1% next year.

