UK inflation surges, weakening case for rate cut

A shopper selects fruit in an Aldi store in London, February 15, 2018. —Reuters pic
A shopper selects fruit in an Aldi store in London, February 15, 2018. —Reuters pic

LONDON, Feb 19 — British annual inflation surged to 1.8 per cent in January from 1.3 per cent one month earlier, official data showed today, boosting the pound.

The Consumer Prices Index (CPI) 12-month rate jumped more than expected on higher energy bills, the Office for National Statistics said in a statement.

Analysts’ consensus forecast had been for an increase in the rate to 1.6 per cent from a three-year low 1.3 per cent in December.

“While CPI inflation rose for the first time in six months, the inflation figures were in line with the Bank of England’s expectations, so they are unlikely to move the dial on the outlook for interest rates,” said Ruth Gregory, senior UK economist at Capital Economics.

The Bank of England last month voted to keep its main interest rate at 0.75 per cent, deciding against a cut despite slashing its estimates for UK economic growth this year and next, as the country tackles tough trade negotiations with the European Union following Brexit.

Today’s inflation data “vindicates the Bank of England’s decision to keep interest rates on hold in January”, said Debapratim De, senior economist at Deloitte.

“Further rises would significantly reduce the chances of a rate cut in the near future.”

Nevertheless, January’s inflation surge helped push the pound above US$1.30. — Reuters

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