Inflation reaches 12-month high

The increase in interest rates moved a little further away today as UK inflation pushed up to 0.3% in January, according to the Office for National Statistics (ONS).

The 12-month high comes as the fall in petrol and food prices begin to slow, but the cost of alcohol and clothing increased.

Measured by the Consumer Prices Index (CPI), inflation has been below the Bank of England’s (BoE) target of 2% since 2014, dropping to negative figures just three months ago.

Despite the increase, inflation still continues to sit at historically low levels and the BoE predicts that it will remain below their target for ‘some time to come’.

Howard Archer, chief European and UK economist of IHS Economics, states that:

“The weakness in oil and commodity prices means that consumer price inflation will likely remain extremely low for longer.”

With both Asda and Morrisons recently announcing additional price cut initiatives, the supermarket pricing war is continuing, meaning costs will remain competitive, stalling the rise in inflation slightly.

“Consumer price inflation will likely hover around 0.3% in the near-term, before gradually trending up in the second half of the year,” Archer continues.

“It currently looks unlikely to get up to 1.0% until the fourth quarter of 2016.”

“We expect inflation to then trend gradually higher to reach the Bank of England’s target rate of 2.0% late on in 2017.”

[Source:- Mortgageadvicebureau]