Brexit latest: Inflation forecast to hit 1.9 per cent on back of higher petrol prices

In the Office for National Statistics' last report inflation in December came in at 1.6 per cent.

Ben Chu
Monday 13 February 2017 17:35
Petrol prices rose in January
Petrol prices rose in January

UK consumer price inflation is expected to jump to 1.9 per cent on Tuesday, its highest level since June 2014, as the slump in the pound since last June's Brexit referendum continues to feed through to the high street.

In the Office for National Statistics' last report, inflation in December came in at 1.6 per cent year on year.

On Tuesday, the consensus of City analysts is that it will report a 1.9 per cent figure for January, just below the Bank of England's official 2 per cent target.

Heading up

Alan Clarke, an economist at Scotiabank, said half of the contribution to the rise in the annual rate of CPI would likely be from petrol and diesel prices, which rose by almost 3.5 per cent month on month in January, after registering a 2.5 per cent fall in January 2016.

There would also be upward contributions to the overall rate, Mr Clarke predicted, from food and rail fares.

"We are in a rising inflation environment when there tend to be more upward surprises than downwards surprises," he added

The Bank of England expects inflation to breach 2 per cent by the end of March and peak at 2.72 per cent in the first quarter of 2018, before gliding down to 2.4 per cent by the end of 2019.

In its latest minutes, the Bank's Monetary Policy Committee said it was prepared to tolerate an overshoot of its target over its three-year forecast period in order to support growth as the economy slows over the next two years during the Brexit negotiations.

But it added "some members" of the MPC are reaching the limits of their tolerance for inflation, implying that they could soon start voting for rate rises if inflationary pressures seem to be stronger than expected.

The value of trade-weighted sterling has slumped by around 12 per cent since last June and this has prompted a sharp rise in factory input prices.

Economists expect these prices to steadily feed into shop prices over the coming months, pushing up the official Consumer Price Index.

The UK exited a period of mild deflation at the end of 2015 and the CPI has been rising steadily over the past 12 months.

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