UK inflation rises to three-month high of 0.7%

By David Milliken and William Schomberg

LONDON (Reuters) – British inflation rose a little more than expected in January as the country went back into a coronavirus lockdown, pushed up by higher food prices and less discounting of household goods such as sofas, official data showed on Wednesday.

Consumer prices rose 0.7% in annual terms after a 0.6% increase in December, the Office for National Statistics said.

A Reuters poll of economists had pointed to the annual rate remaining at 0.6%.

“Inflation rose slightly in January, with food prices increasing. Household goods also pushed up prices with less discounting this year on items such as bedding and settees,” ONS statistician Jonathan Athow said.

Food and drink prices rose by 0.6% between December and January – compared with a 0.2% fall over the same period a year earlier – and furniture and household goods dropped by 1.5% compared with a fall of 3.3% a year earlier.

Clothing and footwear prices fell by 4.9% on the month – the biggest drop between December and January in seven years – and recorded a 3.8% annual fall.

The ONS said around 8% of the prices it would normally collect were unavailable, a smaller number than in November.

Inflation has been stuck below the Bank of England’s 2% target since mid-2019 and the coronavirus lockdowns pushed it close to zero last year as the economy tanked.

Earlier this month, the BoE said it expects inflation to pick up quite sharply towards its 2% target in the spring as last year’s emergency cut in value-added tax expires and global oil prices rise on expectations of recovery.

Economists also think prices of some imported products will rise because of Britain’s new, less open trading relationship with the European Union which led to disruption and delays at ports last month.

The ONS said it had seen no evidence that new Brexit-related custom fees and transport costs had pushed up consumer prices in January.

The BoE has stressed it will be in no hurry to start removing its huge stimulus for Britain’s COVID-weakened economy, saying it will wait for evidence of significant progress towards hitting the 2% inflation target sustainably.

A core version of the CPI, excluding volatile fuel and food prices, held steady at 1.4%.

The ONS said factory gate prices fell again, dropping by 0.2% on the year, while the measure for core output prices rose by 1.4%.

(Reporting by William Schomberg and David Milliken)