U.K. Inflation Rate Rises To Highest in 12-Months

  • Core inflation slows to 1.2% from 1.4% as air fares tumble
  • Inflation well below 2% target supports no BOE action on rates

U.K. inflation climbed to its highest in a year in January, driven by motor fuels, food and clothing.

Consumer prices rose an annual 0.3 percent following a 0.2 percent gain in December, in line with the median forecast of economists in a Bloomberg survey. Core inflation, which excludes volatile food and energy prices, slowed to 1.2 percent from 1.4 percent, the figures from the Office for National Statistics in London show.

Inflation remains well below the Bank of England’s 2 percent target. With oil prices remaining near a 12-year low and pay pressures weakening, officials say that the economy doesn’t yet warrant a rate increase from a record-low 0.5 percent.

Central to the outlook for rates is pay growth, which has come off the boil in recent months despite unemployment reaching a decade low. The statistics office will report data on jobs and wages on Wednesday.

The main driver behind the pickup in inflation last month was motor fuel, which fell less than a year earlier. These pressures were partially offset by air fares, which fell 36 percent, more than they did a year ago, following an upward surge in December.

Weak Cost Pressures

The pound gained after the report and was trading at $1.4486 as of 9:47 a.m. in London, up 0.4 percent from Monday.

In their February inflation report, BOE officials said they see inflation at 1.2 percent in the first quarter of next year, down from a projection of 1.5 percent in November.

On the month, consumer prices fell 0.8 percent, with core prices declining 1 percent. Separate figures show producer prices falling 0.1 percent in January as input costs declined 0.7 percent. House-price growth slowed to 6.7 percent in December. For 2015 as a whole, house prices rose 6.7 percent.

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell