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Rate cut less likely as inflation reaches six-month high

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  • 19/02/2020
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Rising fuel prices helped drive UK inflation to a six-month high in January reducing the chances of the Bank of England (BoE) cutting interest rates further, official figures show.

 

The Consumer Prices Index (CPI) measure of inflation unexpectedly rose to 1.8 per cent last month, up from 1.3 per cent in December, according to figures from the Office for National Statistics (ONS).

“The rise in inflation is largely the result of higher prices at the pump and airfares falling by less than a year ago. In addition, gas and electricity prices were unchanged this month, but fell this time last year due to the introduction of the energy price cap,” the ONS said.

Inflation has been below the government’s two per cent target since August last year, which had been putting pressure on the BoE to cut interest rates.

However, these latest figures make the likelihood of that happening less possible at BoE’s next meeting in March.

“The jump in inflation this month may lead the Bank to continue its wait-and-see approach before it makes a move on rates,” said Laura Suter, personal finance analyst at investment platform AJ Bell.

The latest wage inflation figures released yesterday show pay is increasing by 3.2 per cent, excluding bonuses, and while this is a drop on the previous data, it’s still far ahead of inflation.

Ed Monk, associate director for personal investing at Fidelity International, said: “Today’s rise in inflation is a worrying sign for households, particularly given the fall in average wage rises that was confirmed yesterday. Pay is still rising ahead of prices but by less than we assumed just a month ago, and today’s numbers suggest total pay growth is now just 1.1 per cent ahead of inflation.”

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