Published: Wed, January 18, 2017
Economy | By Melissa Porter

United Kingdom inflation surges more than expected, ONS reveals

The main contributors to the increase in the rate were rises in air fares and the price of food, along with prices for motor fuels, which fell by less than they did a year ago.

The situation for first-time buyers worsened in November as house prices increased across the United Kingdom once again, according to the Office for National Statistics (ONS).

This is the highest figure for the Consumer Prices Index (CPI) since July 2014, when it was also 1.6%.

It is at its highest since July 2014 and the Bank of England is expecting inflation to rise to almost 3% in 2018 against a background of slowing economic growth.

It calculated that while overall food costs were still down 1% on an annual basis, the weakness of sterling had helped drive some categories higher as suppliers of imported goods had demanded more from retailers.

The ONS said the 12-month rate for food prices was still negative, down 1% on the year, but that was still the highest since July 2014.

United Kingdom inflation accelerated above expectations in December, raising additional suspicions that the Bank of England might begin considering the requirement for higher interest rates later in 2017, noted IHS Markit chief economist Chris Williamson. Despite the ongoing price war between the supermarkets, food prices are beginning to rise particularly on imported goods.

The economist takes the view that 'more inflation will come, in the short-term'. "Whether it is an issue or not really depends on whether inflation now gathers pace and begins to be translated into higher wage inflation, reduced competitiveness and therefore reduced profitability".

Most had predicted December's inflation to be at 1.4 percent.

"Increasingly people are living 20 or more years in retirement and even low-level inflation can erode the value of retirement income over time".

All this should mean less inflationary pressure and relatively lacklustre economic growth.

Meanwhile, the Retail Price Index (RPI) annual rate rose to 2.5% in December, up from 2.2% the previous month.

"However, the effect of the weak pound, assuming it doesn't fall much further, is a one-off factor which will fall out of the figures eventually".

'The younger generation is saddled with debt and struggling to get on the housing ladder.

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