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Published: Wed, February 14, 2018
Economy | By Melissa Porter

United Kingdom inflation holds at 3.0 per cent

United Kingdom inflation holds at 3.0 per cent

Sterling edged up against the dollar on Tuesday, continuing a modest rebound from three-week lows hit on Friday, as traders eyed United Kingdom inflation data for clues on when and how fast the Bank of England will raise interest rates.

For the 13th consecutive month since January 2017, Consumer Price Index, CPI, dropped to about 15.13 per cent in January 2018, the National Bureau of Statistics, NBS, said in its latest Inflation Report.

'Inflation was unchanged in January, as a smaller rise in motor fuel prices helped to a keep a lid on overall United Kingdom price growth. Over the last 12 months, "headline" inflation rose 2.1%.

"This adds further weight to the case for higher interest rates sooner rather than later".

Mr Brettell said it now looks like the next rise "may well happen in May".

This prompted markets to price in as much as a 70% chance of a quarter-point rise in interest rates by May.

However, the ONS said the growth in the cost of raw materials had slowed, with the prices of some imported goods falling.

The data also showed that the rate of price rise for consumer foods eased to 4.7 per cent in January, from 4.96 per cent in December.

The main upward pressure last month came from the cost of entrance fees to a range of recreational venues such as zoos and gardens, for which prices fell by less than they did a year ago.

Overall consumer prices rose 0.5 percent in January, the most in four months, the Labor Department said Wednesday.

Inflation based on consumer price index marginally slowed to 5.07 per cent in January from 5.21 per cent in December, mildly pulling back the northward trajectory seen since July 2017.

On the currency markets, the pound rose 0.5 per cent against the dollar after the ONS data.

The pound skidded to a three-week trough below US$1.38 on Friday after the EU's chief Brexit negotiator Michel Barnier warned a transition deal was far from assured.

Data released on Monday showed that IIP grew 3.7 per cent on a cumulative basis between April and December 2017, against 5.1 per cent in the corresponding period in 2016.

"Non-oil, non-gold imports (proxy for domestic consumption) is expected to have stayed strong at 24.6 per cent versus 12.8 per cent as domestic demand indicators such as auto and two-wheeler sales growth was strong in the month", it added.

Core inflation - which strips out food and energy - was up 0.3% in January and has increased 1.8% over the last 12 months, still below the Federal Reserve's target of 2.0%.

Calum Bennie, savings expert at mutual investment group Scottish Friendly, said: "The negative disparity between wage increases and the cost of living goes on, which turns the heat up on (BoE governor Mark Carney) to raise interest rates in an effort to bring down inflation".

The Bank of England monetary policy committee warned last week that, partly due to stronger worldwide economic demand, United Kingdom rates would have to rise sooner and to a "greater extent" than previously anticipated.

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