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UK inflation grew more than expected to 3 percent in January, highlighting the challenge for the Bank of England as it claims with constant price pressures and a weakened economy.
The annual price growth rate was higher in 10 months and over 2.5 percent registered in December and the 2.8 percent forecast by economists surveyed by Reuters, the Office of National Statistics said on Wednesday. It was also very above the last level of 1.7 percent in September.
Growth was driven by higher costs for private schools as the government set VAT at tariffs, higher costs for food and non-alcoholic beverages and air tariffs falling less than usual in January, Ons said.
Boe said this month that price pressures were on “a bumpy road” as it predicted inflation to rise to 3.7 percent in the middle of the year, driven by higher global energy costs. The Central Bank said inflation would later fall to about 2 percent of its target.
The increase in UK salaries excluding accelerated rewards at an annual rate of 5.9 percent in three months by December showed the figures published on Tuesday. But economic growth has been weak, with official data last week showing a marginal expansion of 0.1 percent in three months until December, after the stagnation of the last quarter.
Zara Nokes, Global Market Analyst at JPMORGAN ASSET Management, said: “hot on the heels of strong wages yesterday, suppressing the hottest inflation this morning more than expected will raise the alarm bells on Threadneedle Street . “
Inflation of services, a major amount of fundamental pricing pressures, increased to 5 percent in January from 4.4 percent in December, but was under the expectations of economists of 5.2 percent.
Following the inflation figures, the traders grip the bets that BOE would give two further decreases of the quarter points at the tariffs this year after lowering the borrowing costs this month, but went through the possibility of first movement coming in March to 20 percent from 25 percent.
Pound was flat with $ 1,262 after data. The yield in the two-year-old gilding to the rate increased 0.02 percentage points to 4.26 percent.
Ruth Gregory, an economist in the consulting of the capital economy, said the concern in the BOE would withdraw from the role of air tariffs in rising January and lower growth than expected in service inflation.
“So internal pressures don’t look stronger than the bank had predicted,” she said.
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Responding to Wednesday figures, Chancellor Rachel Reeves said: “Getting more money in people’s pockets is my number one mission. Since elections, we have seen salaries year after year after their inflation increases Quick-worth £ 1,000 per year on average-but I know that millions of families are still struggling to meet the conclusions. “
Mel Stride, the Chancellor of Shadow, said: “Today’s inflation figures mean further pain for family finances – and this is thanks to the increase in record taxes of labor and increasing inflation wages.”
Boe andrew Bailey Governor on Tuesday said the Central Bank had been able to reduce interest rates three times since last summer due to the decline in inflation and because “we are facing a poor UK growth environment . ”
He added that the expected increase in inflation was among the “challenges” ahead for BOE, as well as global uncertainty, and repeated his intention to take a “gradual and careful” approach to lowering interest rates.
