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The CPI Inflation rate returned to 3.0% in January, which is likely to slow down the Bank of England’s trajectory in cutting the base rate.
The inflation rate was 2.5% the month before, while the Bank had expected inflation to rise to 2.8% in January.
Earlier this month the base rate was cut from 4.75% to 4.5%, while two members of the Bank’s Monetary Policy Committee favoured a more drastic reduction of 0.5% to 4.25%, raising the prospect of three further base rate cuts this year.
That roadmap now looks more unlikely.
Peter Stimson, head of product at lender MPowered Mortgages, said: “Optimists have been quick to point out that much of the painful surge in CPI is down to one-off factors like the introduction of VAT on school fees in January and the annual increase in rail and bus fares.
“But even the most indulgent reader of this data has to admit that hopes of an imminent interest rate cut have been dashed.”
“For all its desire to support the UK’s stagnant economy, the Bank of England’s day job is to get CPI down to 2% and keep it there. At 3%, CPI is now way off target and there is plenty of scope for further inflationary pressure.
“Against that backdrop, the chances of the Bank of England cutting its base rate again in March have all but evaporated. It will have little choice but to leave rates alone in a bid to get inflation under control.”
Core inflation, which strips out volatile factors like energy and food costs, jumped from 3.2% in December to 3.7% in January.
Workers’ real wages are rising at the fastest pace in over three years, while inflation in the UK’s vast services sector is running at 5%.
John Phillips, chief executive of Just Mortgages and Spicerhaart, said: “We have to be realistic and acknowledge that inflation is likely to remain a persistent challenge this year, particularly with geopolitical tensions escalating, higher energy prices later in the year and as we see the full effects of government policy, such as the national insurance hike. We also have the elephant in the room and the upcoming Spring Statement at the end of March.
“All along though, the central bank has maintained that it will push forward with multiple base rate cuts this year, as it balances sticky inflation with an economy showing minimal growth. Whether today’s bigger rise in inflation changes that trajectory is yet to be seen.”
Via @PropertyWire