Market News

    UK inflation jumps by more than expected to 3.0%

    British inflation sped up by more than expected to hit a 10-month high of 3.0% in January and it is likely to rise further soon, testing the Bank of England's confidence that price pressures are on a downward path over the longer term.

    Economists polled by Reuters had expected a headline inflation reading of 2.8%, pushed up from December's 2.5% rate by factors including an increase in a cap on bus fares and a tax hit to private school fees by the government of Prime Minister Keir Starmer.

    The BoE had also forecast a January inflation rate of 2.8%.

    The central bank expects consumer price inflation to peak at 3.7% in the third quarter of this year, driven mostly by higher energy costs and regulated tariffs for items such as domestic water supply.

    But Governor Andrew Bailey and his colleagues say a slowdown in the jobs market is likely to keep a lid on higher wage demands this year after an acceleration in late 2024, limiting the risk of a build-up of inflation pressure.

    Sterling rose after the figures were published before quickly settling back to its pre-release level.

    Services inflation - a key gauge of price pressures for the central bank - stood at 5.0% in January compared with 4.4% in December, the ONS said. The economists polled by Reuters and the BoE had forecast it would pick up by more to 5.2%.

    Core inflation, which excludes energy, food, alcohol and tobacco prices, rose to 3.7% from 3.2%. The Reuters poll had pointed to a reading of 3.7%.

    Source: Investing