Brexit to cause further inflation

Ryan Bembridge

July 19, 2016

Insurance provider Aegon expects the vote to leave the European Union to ramp up inflation.

Today’s Office for National Statistics figures show CPI inflation increasing from 0.3% in May to 0.5% in June.

This increase can be largely attributed to rising air fares and oil princes – however Aegon said there is potential for further inflation in the months to come.

Kate Smith, head of pensions at Aegon, said: “After more than a year of nearly zero growth in prices, it becomes easy to forget about the effects of inflation.

“While some inflation is healthy for the economy, it poses particular challenges for retirees on fixed incomes who gradually see the value of their spending power eroded.”

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  • It’s far too early to say whether the EU vote will cause inflation or deflation. There are conflicting forces. A devalued pound makes imports more expensive, pushing up prices. But a receding economy will contribute deflationary pressure.

    This is why the MPC held fire on chancing the Official Bank Rate last week. The expectation is that rates will go down, which indicates that markets actually expect deflation. But the Bank will wait until there is more data to make the call.