UK inflation rises ahead of expected spring acceleration By Reuters


© Reuters. People walk down Oxford Street as shops remain closed under Level 4 restrictions, amid the coronavirus disease (COVID-19) outbreak in London

By William Schomberg and David Milliken LONDON (Reuters) – British inflation rose in January as blocked consumers paid more for food and sellers of furniture and other household goods offered smaller New Year discounts than usual to people seeking to improve homes. The 0.7% annual increase in consumer prices is expected to accelerate in the coming months, driven by the end of an emergency tax break and possibly the impact of Brexit, and could exceed the 2.0% target. from the Bank of England this year. Economists said there was little pressure on the central bank to think about reducing its stimulus plans. However, UK 10- and 30-year government bond yields extended their recent rally and reached their highest level since March 2020 as investors brace for higher inflation and more fiscal stimulus in the United States. “Inflation rose slightly in January as food prices rose. Household items also pushed up prices with less discounts this year on items like bedding and sofas,” said ONS statistician Jonathan Athow. Analysts polled by Reuters had primarily thought that the consumer price index would remain at December’s 0.6% rise. Food and beverage prices increased 0.6% between December and January, compared with a 0.2% drop in the same period last year, and furniture and household items fell 1.5% , a lesser decrease than the 3.3% drop a year earlier. In contrast, clothing and footwear prices fell the most between December and January in seven years as retailers, with their stores closed, tried to dump stocks. The impact of the pandemic on British shopping habits led to a new weighting of the basket of goods and services used by the Office for National Statistics to calculate inflation. Food and furniture now have a bigger impact on the index, while airfare and movie tickets now count for less. The ONS said the overall impact of the change did not have a significant effect on the CPI. INFLATION RISES, BOE WILL WAIT UK inflation has been below the BoE’s 2% target since mid-2019 and approached zero last year when the economy crashed. The Bank of England expects it to pick up speed in the spring when last year’s emergency cut in value added tax for the hotel sector expires and world oil prices rise on expectations of recovery. But the BoE has emphasized that it will be in no rush to start withdrawing its massive stimulus. Yael Selfin, an economist at KPMG, said inflation could remain below 2% in 2021 and 2022, “allowing a longer period of low interest rates to support the economic recovery.” Economists believe prices for some imports will rise due to Britain’s new, less open trade relationship with the European Union, which caused disruptions and delays at ports last month. The ONS said it saw no evidence that Brexit-related customs fees and transportation costs pushed up consumer prices in January. But Samuel Tombs of Pantheon Macroeconomics said larger annual price increases for furniture and appliances could reflect higher shipping and Brexit-related costs. A basic version of the CPI, excluding volatile fuel and food prices, was stable at 1.4%. Prices at factories declined again, falling 0.2% year-on-year, while the core producer price measure rose 1.4%.