Inflation increases gather pace

Inflation reached its highest level for 31 months as increases in the cost of living continued to gather pace.

The consumer price index (CPI) reached 1.8% in January, up from 1.6% last month and double the rate seen in October.

It is the first time in six years that inflation has risen for three consecutive months.

Mike Prestwood, head of inflation at the Office for National Statistics, said: “The latest rise in CPI was mainly due to rising petrol and diesel prices, along with a significant slowdown in the fall in food prices.

“The costs of raw materials and goods leaving factories both rose significantly, mainly thanks to higher oil prices and the weakened pound.

“Both house prices and rents continue to grow over the year but with some signs of a slowdown in recent months.”

Chris Williamson, chief business economist at IHS Markit, expects the Bank of England’s 2.0% target for inflation “looks likely to be breached” in the months ahead.

He said: “Further upward pressure on prices looks inevitable in coming months as energy costs continue to climb and firms pass rising costs on to customers, pushing inflation up towards 3.0% in the second half of the year.

“Bank of England Governor Mark Carney has outlined how policymakers are prepared to look through this increase in inflation, keeping policy on hold amid the heightened uncertainty that the UK economy faces during the process of withdrawing from the EU.”

Inflation rate, 2006 – January 2017
Inflation rate to January 2017