UK inflation beats forecasts in cost of living warning

Inflation exceeded forecasts made by economists, warning the Bank of England of a steady pace of interest rate cuts.

New data published by the Office for National Statistics (ONS) shows consumer price index (CPI) inflation, a key measure of price growth, reached 3.4 percent in the year to December.

Economists surveyed by Bloomberg predicted the figure would reach 3.3 percent.

The higher inflation rate may reflect a delay in data collection as airline ticket prices are expected to rise more quickly as Christmas approaches.

“Inflation increased slightly in December, driven in part by rising tobacco prices following recently introduced excise increases,” said Grant Fitzner, chief economist at the ONS.

Worrying news for British households is that food price inflation reached 4.5 percent compared to 4.2 percent in the previous month. The move is being closely watched by Bank of England rate setters as food costs can weigh heavily on inflation expectations.

Services inflation, which is also closely monitored by World Bank officials, reached 4.5 percent, according to the official data agency.

Inflation data must be digested by World Bank analysts

Today’s release will be the last important inflation figure that Bank of England policymakers will see before they decide whether to cut interest rates in early February.

The World Bank is not expected to lower interest rates from the current level of 3.75 percent at its next meeting.

But dovish members of the monetary policy committee, including Alan Taylor, argued that shifting trade from China to the UK would lower prices for British consumers.

ONS figures showing a continued downward trend in wage growth and yesterday’s job cuts are also likely to provide additional ammunition for the rate cutters to make their case in the upcoming meeting.

Most economists expect only one more rate cut this year as the World Bank hopes to carefully manage the British economy as it gradually reaches its target inflation rate of 2 percent.

Some economists believe Britain could end interest rates as low as 3 percent, although stiff wage growth and high inflation expectations could scupper plans for further cuts this year.

Andrew Bailey also urged central bank members to remain “very vigilant” about President Trump’s economic policymaking, with interference with the Federal Reserve’s independence and the potential for higher rates having a ripple effect on growth and inflation across the UK.