LONDON, (REUTERS): British consumer prices rose last month at the fastest pace since June 2014, caused by higher global oil prices and the Brexit vote-fuelled fall in the value of sterling, official data showed on Tuesday.
Consumer prices rose 1.8 percent compared with a year earlier, the Office for National Statistics said, slightly below expectations for a 1.9 percent annual rise in a Reuters poll of economists.
The Bank of England forecast earlier this month that inflation will rise above 2.7 percent in around a year’s time as Britain’s vote to leave the European Union pushes up the cost of imports.
Separate ONS data showed prices paid by factories for fuel and materials rose at an annual rate of 20.5 percent in January, the sharpest rise since September 2008.
The cost of crude oil alone was more than 88 percent higher than a year earlier – the biggest increase since June 2000 – overwhelmingly driven by a global rebound in oil prices.
“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,” ONS statistician Mike Prestwood said.
The pound’s fall – it is down about 17 percent against the US dollar and 11 percent against the euro since the June 2016 referendum – is starting to hit the spending power of consumers, who have helped the British economy to grow since the vote.
Last week BoE rate-setter Kristin Forbes said she was beginning to become uncomfortable with the central bank’s commitment to a neutral policy stance, arguing instead that interest rates could need to rise soon if price pressures continue to build.
Retail price inflation – tracked by British inflation-linked government bonds and many commercial contracts – also rose to its highest since June 2014 at 2.6 percent.
Excluding oil prices and other volatile components such as food, core consumer price inflation held steady at 1.6 percent, confounding economists’ expectations for a rise to 1.8 percent.
Data on factory gate prices underscored the inflationary pressures in the pipeline. Output prices rose 3.5 percent on the year, the biggest increase since January 2012, compared with forecasts of a 3.2 percent increase.
The ONS also released figures for December house prices, which showed an 7.2 percent annual rise across the United Kingdom as a whole compared with a 6.1 percent increase in November.
Prices in London alone rose 7.5 percent on the year.