UK: Inflation Accelerates to 10-Month High

Inflation in the United Kingdom accelerated significantly in January, hitting its highest level in 10 months, driven mainly by higher airfares, car fuel and food costs, as well as the introduction of a value-added tax on private school tuition fees.

Consumer prices in Britain rose 3% year-on-year, accelerating from a 2.5% pace in December, the Office for National Statistics said on Wednesday.

The figures were above expectations by Bloomberg News and also above the Bank of England’s estimate of 2.8%.

The latest inflation data is likely to reinforce the Bank of England’s caution about cutting interest rates to support the struggling economy.

While Bank of England Governor Andrew Bailey has played down the threat from an expected rise in inflation this year, officials say they cannot rule out “second-stage effects” that could keep underlying inflation pressures elevated for longer.

The Bank of England expects inflation to peak at 3.7% in the third quarter, driven mostly by higher energy costs and charges for services such as household water supplies.