* CPI hits 2.9 pct, highest since June 2013
* Signs of slowdown in costs surge for factories
* Sterling weakens despite CPI jump
* Weak pound pushes up costs of holidays, computers
(Adds market reaction, economist comment, graphic)
LONDON, - British inflation unexpectedly
jumped to its highest level in nearly four years in May,
tightening the squeeze on consumers who now face the added worry
of political uncertainty after last week's inconclusive
election.
The impact of the fall in the pound since last year's Brexit
vote made itself felt as the higher costs of foreign holidays
and of imported computer games and equipment helped push up
consumer prices by 2.9 percent year-on-year.
That was its biggest annual increase since June 2013, the
Office for National Statistics said, and was above the median
forecast of 2.7 percent in a Reuters poll of economists.
It is also faster than the growth in pay for most people who
have suffered a squeeze on their incomes almost without break
for a decade.
Data due to be released on Wednesday is likely to show basic
pay rose by an annual 2.0 percent in the three months to April,
according to another Reuters poll.
Prime Minister Theresa May, weakened by the loss of her
parliamentary majority in the election, has accepted that
voters' patience with austerity is at an end, the Times
reported on Tuesday.
Despite the stronger-than-expected consumer price inflation
figures, the pound fell slightly after the ONS data, possibly
reflecting a slowing of the surge in prices faced by factories
which hints at slower inflation ahead for households.
Paul Hollingsworth, an economist with Capital Economics,
said he believed the data showed the drop in the pound has fed
through into inflation more quickly than expected.
"While we think that CPI inflation will peak at a little
above 3 percent before the end of this year, it is likely to
drop back fairly quickly in 2018," he said.
The ONS said one of the main drivers for inflation in May
was the increased cost of package holidays abroad for British
tourists who have to pay more for their euros and dollars.
Another big push on prices came from computer games and
equipment, which are typically imported and therefore reflect
the diminished buying power of sterling since the Brexit vote.
Inflation has picked up speed broadly around the world but
in Britain there is extra pressure from the fall in sterling,
contributing to a sharp slowdown in British economic growth
since the start of this year.
Credit card firm Visa said on Monday it saw the first annual
fall in spending by consumers in nearly four years in May.
That was before last week's shock election result that has
raised questions about how May will advance her plans to take
Britain out of the European Union, and push other legislation.
A survey of executives published on Monday showed business
confidence plunging after the election.
FACTORY COSTS SURGE EASING
Despite the sharp rise in prices, the Bank of England is
widely expected to keep interest rates at their record low of
0.25 percent when it announces its latest monetary policy
decision on Thursday.
The BoE has said it will tolerate inflation above its target
of 2 percent because so far there has been no knock-on effect on
pay which could generate a longer-lasting inflation problem.
But the BoE had previously said it only expected inflation
to reach the kind of levels it has now hit at the end of this
year.
Some economists have said Britain's political turmoil is
likely to make the BoE more cautious about considering a rate
hike and could even lead it to revive its massive bond-buying
programme if the economy weakens further.
The BoE was also likely to take comfort from the data which
showed inflationary pressures might be easing.
Input prices for factories fell by 1.3 percent in
month-on-month terms in May, taking the yearly rate of price
growth down to 11.6 percent from a downwardly revised 15.6
percent in April, its slowest annual growth rate since last
September.
Growth in prices charged by factories held steady at an
annual 3.6 percent, in line with the Reuters poll.
Source: Reuters