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UK inflation rate jumps to 1.8 per cent in January

UK inflation rose to a six-month high of 1.8 per cent in January, a significant increase from December’s rate of 1.3 per cent, according to official data released today.

The rate remains below the Bank of England’s (BoE) target of two per cent. The bump comes as a surprise to analysts, who had forecast the rate to rise half as much to 1.6 per cent.

The rise was seen as a vindication of the BoE’s decision not to cut rates at its January meeting of the Monetary Policy Committee (MPC), despite fears of a potential recession.

Craig Erlam, senior market analyst at Oanda, said: “The MPC can now reflect positively on their decision to not jump the gun in January, on the back of some poor end of 2019 readings.

“There were too many one-off factors to explain the weakness and the level-headed approach appears to have paid off”.

Sterling initially rose 0.2 per cent against the dollar on the back of the news, breaking through $1.30, before paring its gains.

Activtrades senior analyst Ricardo Evangelista said that the boost showed the British economy continues to give signs of vitality “against all odds”.

The Office of National Statistics said the main drivers of the increase in inflation were increases in the housing and household services – gas and energy bills – as well as transport, which rose 0.2 per cent on rising fuel pump prices.

Recovering energy prices, which had taken a hit on the back of Ofgem’s introduction of the initial price cap last year, recovered after last year’s fall.

The retail and hospitality sectors also recorded rises, with the main contribution coming from women’s clothing. Despite evidence of increased discounting in December, the data showed little reduction in the number of items on sale.

Restaurants and hotels helped push the index as prices for overnight hotel accommodation fell by 3.9 per cent between December 2019 and January 2020, compared with a fall of 9.1 per cent between December 2018 and January 2019.

In a reversal from last month’s results, food and non-alcoholic beverages contributed a small negative contribution as December saw prices fall.

Ayush Ansal, investment chief at Crimson Black Capital, said that few would have seen this “curveball coming”:

“A rise was priced in but for inflation to surge by so much in just one month will have caught pound watchers by surprise. In just a month the doves at the Bank of England have gone from driving seat to back seat.

“With the chances of an interest rate cut now negligible, the pound will inevitably benefit”.

Robert Alster, head of investment services at Close Brothers Asset Management, said: “Inflation is ticking upwards, driven by greater consumer confidence, but does remain below target.

“However, despite this greater economic optimism, the UK is not yet out of the Brexit fog and the 31 December cliff-edge is only getting closer. The Bank of England will be trepidatious about bold monetary decisions until the scale of this post-EU disruption is known”.

By Edward Thicknesse

Source: City AM

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UK inflation rises for first time in 2018, seen falling soon

Britain’s inflation rate rose in July for the first time in 2018, keeping the squeeze on many households’ budgets, but there were signs that the pick-up was a blip and inflation might fall faster than the Bank of England thinks.

Consumer price inflation rose at an annual rate of 2.5 percent in July after holding at 2.4 percent in the previous three months, matching economists’ forecasts in a Reuters poll.

It was the first time since November that inflation gained pace, slowing the recovery in spending power for consumers.

“These figures show that the cost of living squeeze is not yet a thing of the past,” said Tej Parikh, an economist at the Institute of Directors, an employers’ group.

Average earnings, including bonuses, rose an annual 2.4 percent in the three months to June, the Office for National Statistics said on Tuesday, extending a long run of pay rises below their pre-financial crisis levels.

But economists noted the inflation rise was driven largely by one-off factors, such as a rise in prices of computers games – which are often volatile – and transport fares.

The National Institute for Economic and Social Research, a think tank, said its measure of core inflation, stripping out extreme price moves, fell and looked set to bring inflation down to the Bank of England’s 2 percent target within a year.

When the BoE raised interest rates this month, it forecast inflation at just above 2 percent in two years’ time.

But many private economists think inflation will prove to be weaker than the BoE is predicting.

Sterling, which has fallen in recent weeks on concerns about the lack of an agreement on Britain’s leaving the European Union and the weak outlook for rate hikes, fell slightly after Wednesday’s data.

The CPI hit a five-year high of 3.1 percent in November, when the inflationary effect of the pound’s tumble after the Brexit vote reached its peak.

OIL PRESSURE

Another measure of inflation, the retail price index, rose by 3.2 percent, its weakest rise since March 2017. For rail travellers, many annual ticket price increases from January will be set by that reading.

There is some pressure in the pipeline for consumers. The cost of raw materials for manufacturers was 10.9 percent higher, the biggest annual rise in over a year, reflecting an increase of more than 50 percent in oil prices.

Manufacturers raised the prices they charged by 3.1 percent, weaker than June’s 3.3 percent but slightly above the forecast in the Reuters poll.

“With the pressure on spending here to stay, businesses may eventually have to rely on new suppliers as well as new final goods and services to restore margins rather than passing through input prices,” economists at Barclays said in a note.

The ONS data also underscored the weakness in the housing market since the 2016 Brexit vote. London house prices fell by the most since 2009, down by an annual 0.7 percent in June.

In the country as a whole, house prices in June rose by an annual 3.0 percent, the weakest increase since August 2013.

Other house prices measures have also slowed to about half the rate before the Brexit vote, hit by a combination of record high valuations, the squeeze on spending power and uncertainty about Britain’s relationship with the European Union.

Source: UK Reuters