Inflation picked up faster than expected at the start of the year, official data shows, as concerns grow about the persistence of price pressures in the economy.
The headline rate of inflation picked up to 3.0 per cent in January, according to new figures from the Office for National Statistics (ONS).
This was up from 2.5 per cent in December and above the 2.8 per cent expected by City traders.
“Inflation increased sharply this month to its highest annual rate since March last year,” Grant Fitzner, chief economist at the ONS said.
“The rise was driven by air fares not falling as much as we usually see at this time of year, partly impacted by the timing of flights over Christmas and New Year,” he added.
It comes a day after new figures showed an acceleration in wage growth in the final three months of last year, which took regular private sector pay to its highest level since November 2023.
Combined with an uptick in inflation, the figures point to the lingering inflationary risks facing the UK economy, which will force the Bank of England to only cut interest rates at a “gradual” pace.
The Bank’s latest forecasts indicate that inflation will peak at 3.7 per cent later this year, fuelled by higher energy prices and rising regulated prices, like water bills and bus fares.
But Andrew Bailey, Governor of the Bank, said the anticipated increase in inflation was not “a story about the fundamental state of the economy,” because it is largely driven by external dynamics.
The Bank expects to see continued progress on services inflation and wage growth throughout the year, which will enable further interest rate cuts. Markets anticipate two more rate cuts this year.
More to follow