personal finance

UK inflation at six-month high as petrol and energy prices rise

Inflation jumped to a six-month high of 1.8% in January after a surge in petrol prices and an increase in the cost of gas and electricity over last year.

The surprise increase in the consumer prices index (CPI), which exceeded forecasts of a rise to 1.6%, brought the main measure of inflation closer to the Bank of England’s target of 2%.

The rise in fuel and energy costs forced up household heating costs and fed into the transport industry, the Office for National Statistics said.

Price increases also affected clothing, footwear and restaurants and hotels, while there was downward pressure from heavy discounting in furniture, household equipment, food and non-alcoholic drinks.

In December, inflation dropped to 1.3%, its lowest level for more than three years, from 1.5% in November.

Gas and electricity price increases in part reflected a comparison with January last year, when the government imposed a cap on energy companies, the ONS said.

UK inflation

Petrol prices also compared unfavourably with January 2019, which was a period of falling costs on garage forecourts. The ONS said prices at the pump rose between December 2019 and January 2020 by 2.3 pence but fell between December 2018 and January 2019.

Prices for clothing overall fell by 3.3% between December 2019 and January 2020, compared with a fall of 4.6% between December 2018 and January 2019.

The ONS said its preferred measure of inflation, CPIH, which includes housing costs, jumped from 1.4% in December to 1.8% in January.

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With inflation heading back to the Bank of England’s target of 2%, the latest figures are expected to take the pressure off Threadneedle Street’s policymakers to cut interest rates. Steady falls in inflation last year had fuelled speculation that the Bank’s monetary policy committee would reduce the current base rate from 0.75% to 0.5%.

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The consultancy Capital Economics said there were few price pressures in the economy and inflation was likely to remain subdued.

“For the MPC, the fact that inflation is evolving in line with its projections provides another reason not to cut interest rates in the near term,” it said.

The chancellor, Rishi Sunak, said: “Families across the country are better off as a result of the strong wage growth and low inflation over the last 18 months.”


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