Inflation rises to 2.5% as economy reopens and global impact of Covid is felt

ITV News Correspondent Richard Pallot reports on the latest changes to the rate of inflation and the impact this has on businesses

Inflation is up to its highest rate in nearly three years, and there is no sign that it will slow down any time soon. Not good for the value of the pound in your pocket. 

The rate of 2.5% is higher than economists expected, but a reflection of the economy reopening and global supply issues becoming more acute.  

June’s data is the first to reflect the reopening of indoor hospitality in the UK, and so prices of food and drink are up significantly. Clothing and footwear too.

Also soaring is the second hand car market, with pent up demand and new car production being hit by the global shortage of semiconductors. 

As pubs and bars reopened in England, crowds gathered in London's Soho. Credit: PA Images

It all means the Bank of England is missing its inflation target of two percent, with many economists predicting it may climb to four percent by the end of the year.  

But the Bank’s governor Andrew Bailey has previously said that his focus is on the medium term, not the short, so interest rates are likely to stay at their historic low. 

In the Sussex town of Bognor Regis, landlady Victoria has a huge problem.

Short of staff for her pub the Beresford, and nine more for a new pub nearby, she’s increased wages already, and the cost of beer and food to cover that.

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She warns she might have to do that again, just to get the staff needed. 

At the “Posh Paws and Nails” salon down the road, it’s a similar story.

Owner Amanda has put prices up by 10%, a combination of a loss of income during lockdown and an increase from wholesalers on beauty products. 

If you’re a nurse at the nearby war memorial hospital, where a one percent NHS pay rise is all you are likely to get this year, you soon see how inflation is already having an significant impact. 

Pubs have been given the go-ahead to reopen but must adhere to social distancing measures. Credit: PA

Further worried glances are being directed towards the US, where consumer prices rose by 5.4%, the fastest since the banking crisis 13 years ago.

Huge monetary and fiscal stimuli have fuelled much of this.

With growth in China already slowing, however, commodity prices should fall worldwide, and so hopefully inflation should also fall in 2022, once the post pandemic boom slows down.