News

UK inflation rose 0.3% in January

Figures released today by the Office for National Statistics (ONS) show that UK inflation rose by 0.3% in January, signifying a 12-month high.

Annual inflation, as measured by CPI, has been below the Bank of England’s (BoE) 2% target for the last two years, and was at zero last year [1].

While this was in line with expectations, and its highest in a year, James Tucker, a statistician at ONS, noted that inflation remained close to “historically low levels” [2].

The BoE said earlier this month that it expects inflation to increase slowly, although staying below 1% for this year.

James Knightley, an economist at ING, said inflation was likely to remain subdued in the coming months, reinforcing expectations that the BoE will keep interest rates on hold [2].

Prior to the last couple of months, inflation had stayed between -0.1% and 0.1% for 10 months, due to a collapse in oil prices and a supermarket pricing war that has led to a large reduction in prices [3].

Economists at Investec said that although the costs of “fuels and lubricants” were down 2.6% in January from December, the drop was far smaller than that of in January 2015 [4].

The ONS said that inflation enjoyed an “upward pull from price movements for other goods and services, most notably restaurant and hotel bills, and education costs, such as university tuition fees” [4].

Few economists expect the BoE to raise rates until the end of the year, with some analysts foreseeing the Bank cutting to rates below the record low of 0.5%, where they have been for almost seven years.

 

[1] BBC News. ‘UK inflation rises in January as fuel prices fall eases’. bbc.co.uk

[2] Telegraph. ‘UK inflation creeps up for third straight month’. telegraph.co.uk

[3] Business Insider. ‘UK inflation is at its highest in more than a year – but it’s still just 0.3%’. uk.businessinsider.com

[4] Financial Times. ‘UK inflation edges higher: economists react’. ft.com