The higher-than-expected rise adds to the Bank’s challenges when considering interest rates.
UK consumer prices index (CPI) inflation rose to 3% in January, an above-expectation increase that adds to the Bank of England’s challenges in managing monetary policy.
According to the Office for National Statistics, rising petrol and food costs drove inflation.
Private schools passing on VAT bills to parents also contributed to the increase, with fees rising 12.7% last month.
The figure was higher than December’s 2.5% increase and the 2.8% predicted by economists in a recent Reuters poll.
Some saw the rise as a problem for the Bank of England following the publication of data yesterday that showed wages rose 5.9% at the end of 2024.
‘This week’s data will cause quite the headache for the Bank of England and raises questions about the decision to cut interest rates this month,’ said Zara Nokes, global market analyst at JP Morgan Asset Management.
‘Hot on the heels of strong wage data yesterday, this morning’s hotter-than-expected inflation print will raise alarm bells at Threadneedle Street. With the hike in employer taxes and the minimum wage increase still coming down the tracks, it is hard to see how inflation dynamics will improve meaningfully in the near term.’
Others pointed out that core inflation, which strips out energy, food, alcohol and tobacco prices, rose by 3.7%, less than expected.
‘Inflation returning to 3% should, oddly, not be too alarming,’ said George Lagarias, chief economist at Forvis Mazars. ‘The Bank of England tends to dismiss energy and food cost spikes, which contributed the most towards price rises, and prefers to monitor the more “sticky” parts of inflation, like wages.
‘Yesterday, despite higher wages, [governor] Andrew Bailey was optimistic about containing wage growth going forward. If food and energy price spikes don’t repeat too often, which would suggest a problem in supply chains due to global policy uncertainty, then last month’s inflation number will likely not deter the Bank from cutting rates going forward.’
Charles Walmsley (CityWire)