RISING living costs increasing the pressure on household finances in the wake of the Brexit vote are being blamed for inflation reaching its highest level in nearly four years in May.
The Office for National Statistics (ONS) said Consumer Prices Index (CPI) inflation reached 2.9 per cent last month, up from 2.7 per cent in April and the highest level since June 2013.
Economists had been expecting inflation to remain at 2.7 per cent.
The figures laid bare the squeeze on domestic finances as inflation outstrips wages, with CPI being sent soaring as the Brexit-hit pound pushed up the price of imported goods and energy. More expensive foreign package holidays and imported computer games also helped push inflation.
Wage increases have not kept up with rising prices.
The most recent ONS data showed that average weekly earnings excluding bonuses increased by 2.1 per cent in the three months to March. Earnings data for the three months to April will be released today.
Business leaders said it reinforced their case for a temporary reduction in VAT.
Liz Cameron, chief executive of Scottish Chambers of Commerce (SCC), said: “This is an early warning sign that there is a real threat to our economy from a decline in consumer spending power. Although the political situation at Westminster has not yet fully settled down following last week’s General Election, the continued elevated rate of inflation above the Government target of two per cent calls for urgent action to address the impact this is having on businesses and consumers.
“At the time of the financial crisis and recession in 2008-09, the UK Government reduced VAT on a temporary basis in order to bolster consumer demand and it is time that such a move was considered again to give people the confidence to spend and to reduce the pressures on business margins. Everything must be done to maintain consumer confidence in these uncertain times to provide a route to business growth and economic prosperity.”
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