UK inflation surged once again in January, coming within just 0.2 percentage points of its officially mandated target for the first time in two years, according to the latest data released by the Office for National Statistics on Tuesday.
The ONS said that the UK’s consumer price index — the key measure of inflation — was 1.8%, up from 1.6% in December, and below the 1.9% forecasted by economists.
Core inflation figures, which strip out volatile goods like oil and food, actually fell, dropping from 1.7% in December to 1.6% in January.
Despite increasing, inflation remains below the long-term trend — as the chart shows, inflation was more than 5% as recently as 2011 — however after two years of negligible price growth, 1.8% is still substantial, especially as prices are expected to keep rising due to the weaker pound following the EU referendum. Inflation is now also just a whisker away from the Bank of England’s government mandated inflation target of 2%
Prior to the Brexit vote, inflation stayed between -0.1% and 0.1% for 10 months due to a collapse in oil prices and a supermarket price war that led to slashed prices.
Prices started to pick up following the Bank of England’s decision to cut interest rates in the aftermath of the UK’s vote to leave the European Union, and the fall in the value of the pound.
Expectations remain that inflation will continue to jump sharply in the coming months as the effects of the weaker pound — which has fallen roughly 19% since the Brexit vote — trickle into the real economy, pushing up the price of goods.
As a result, the Bank of England has said that it is willing to tolerate an overshoot in inflation beyond its 2% target over the coming months in order to protect jobs.
Inflation will more than double to overshoot the Bank of England’s 2% inflation target in 2018, driven up by a falling currency, with the Old Lady of Threadneedle Street forecasting a peak of 2.8% by the first half of 2018.
“Over the next few years, a consequence of weaker sterling is that the higher imported costs resulting from it will boost consumer prices and cause inflation to overshoot the 2% target. This effect is already becoming evident in the data,” the central bank said earlier in February at the release of its first Inflation Report of 2017. Britain is “very likely” to see “further substantial increases” in inflation “over the coming months,” the bank continued.
Concerns about an increase in the price of goods and services in the UK since the Brexit vote came sharply into focus for many UK consumers in October, when Britain’s largest supermarket Tesco briefly stopped stocking products made by Unilever, including Marmite, Colman’s Mustard, and Hellmann’s mayonnaise.
Those fears then returned when it was announced that Toblerone would make its bars smaller in the UK in response to the increasing price of raw materials post-Brexit