UK CPI inflation rate rises to 4.5pc

The rate of Consumer Prices Index inflation in the UK rose to 4.5% in August from 4.4% in July revealed figures from the Office for National Statistics.

The Bank of England argues that inflation is above target primarily because of the rise in VAT to 20% at the start of this year and past increases in global energy prices.

Clothing and footwear provided the biggest uplift to prices, with the 3.7% monthly increase a record between July and August.

Downward pressure came from transport services, particularly passenger transport by air, sea and rail, helped to offset some of these price rises.

Air fares rose by 11% on the month but this was less than the record 16% rise seen a year earlier.

There was also downward pressure from recreation & culture, particularly from games, toys & hobbies and, to a lesser extent, recording media and data processing equipment.

The Bank of England’s target rate for CPI is 2% and it expects inflation to return to target in the next two years.

Chris Williamson, chief economist at Markit, said: “The rate is likely to move higher in coming months as utility bills continue to increase, putting further pressure on already-strained household budgets.

“However inflation should start to fall by the end of the year and drop significantly next year as those factors which have driven the rate up this year, such as January's hike in VAT from 17.5% to 20%, high oil and food prices and the depreciation of sterling all move into reverse.”