ANNUAL UK consumer prices index inflation remained stuck at three per cent in January, official figures show, defying economists’ predictions of a dip and fuelling talk of another rise in interest rates in May.
The annual CPI inflation rate remains one percentage point greater than the two per cent target set for the Bank of England by the Treasury. Economists had forecast a dip in annual CPI inflation to 2.9 per cent last month.
The Bank in November raised UK base rates for the first time for more than a decade, increasing them by a quarter-point from an all-time low of 0.25 per cent.
It last week signalled further rate rises were likely to be needed to bring inflation back to target.
Bank Governor Mark Carney said Monetary Policy Committee members agreed future increases “are expected to be at a gradual pace and to a limited extent”.
Annual CPI inflation had been 3.1 per cent in November, its highest since March 2012. Inflation has been fuelled by sterling’s post-Brexit vote weakness, which has raised the cost of imports. Annual food and non-alcoholic beverage price inflation remained high at 3.7 per cent in January, although it was down from 3.9 per cent in December.
The EY ITEM Club think-tank said of yesterday’s inflation data from the Office for National Statistics: “Consumer price inflation proved sticky in January, remaining at three per cent. This may increase the likelihood of an interest-rate rise in May. It also maintains the squeeze on consumers. However, it still looks likely that inflation peaked at 3.1 per cent in November.”
The Bank of England will publish its next quarterly inflation report in May.
Stephen Boyle, chief economist at Royal Bank of Scotland, said: “As we learned last week, the Bank of England expects inflation to moderate during 2018 but that it will take slightly more assistance in the form of very modest rises in interest rates to get back to the target within two years. These figures do nothing to change that view.”
Annual inflation on the old all-items retail prices index measure dipped from 4.1 per cent in December to four per cent.
Tej Parikh, senior economist at the Institute of Directors, said: “Food price increases – a key cost for households – appear to be slowing, and the Bank of England expects inflation to gradually slide back toward the two per cent target. Meanwhile, skills shortages and tightness in labour markets have the potential to push up wages, which will also help to ease the real pay squeeze.”
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