UK inflation reached a 12-month high of 0.3% in January 2016, Office for National Statistics data has revealed.
UK inflation reached a 12-month high of 0.3% in January 2016, Office for National Statistics data has revealed.
Despite inflation still being some way off the Bank of England’s target of 2% the last time it stood as high as 0.3% was in January 2015.
The price of petrol was a major contributor to the rise. Despite petrol prices falling by 2.6% in January month-on-month they fell by a greater amount a year ago.
Air fare prices partially offset the rise, falling by more than they did a year ago.
Scott Bowman, UK economist at Capital Economics, reckoned inflation will rise this year but still average at less than 1% in 2016.
He said: “Looking ahead, inflation should rise further over the next few months.
“That said, the recent falls in oil prices will limit the rate at which fuel price deflation eases and compound the indirect effects of earlier decreases, including the recently announced cuts in retail gas prices.
“Therefore, inflation will be going nowhere fast, it is set to average less than 1% this year.”
Alan Clarke, head of European fixed income strategy at Scotiabank, disagrees with Bowman and can see inflation staying at 0.3% until the turn of the year.
He said: “We think that it is unlikely that inflation accelerates again until the second half of this year.
“Rather, we expect CPI inflation to move sideways at 0.3% year-on-year until mid-year.
“Part of the reason for this is that petrol prices were rising by a reasonably chunky amount during H1 2015 and that doesn’t look likely to be repeated at this stage.
“Utility bill cuts will subtract from inflation, although only marginally. There have also been some hints that airfares could come down as fuel hedges expire.
“Against that backdrop, it will be a respectable performance for UK inflation to hang onto its recent gains.”
Inflation was at 0.2% in December, 0.1% in November and -0.1% in October.
