Published: Wed, February 14, 2018
Finance | By Kristine Clayton

Will UK interest rates rise as inflation outstrips wage growth?

Will UK interest rates rise as inflation outstrips wage growth?

Among the CPI components, inflation of food and beverages eased to 4.58% in January 2018 from 4.85% in December 2017 mainly contributing to the decline in CPI inflation.

Consumer prices have accelerated since last summer owing to higher oil prices and more expensive housing.

This hawkish interpretation/turn was inspired by Carney himself, saying at a press conference after the last MPC meeting: "It will likely be necessary to raise interest rates to a limited degree in a gradual process, but somewhat earlier and to a somewhat greater extent than what we had thought in November".

The ONS said that although petrol prices had risen by less than this time past year, the cost of entry to attractions such as zoos and gardens fell more slowly.

Consumer price inflation held at an annual rate of 3.0 percent in January, unchanged from December, after hitting its highest since March 2012 in November at 3.1 percent, the Office for National Statistics said.

Against the euro, the pound was trading flat at 1.12 euros.

"In our minds, one of the most likely scenarios from here is one of low or mediocre GDP growth but still elevated levels of United Kingdom inflation".

The higher cost of living has partly been offset by increasing pay for workers, but households aren't reaping a huge bonanza.

'And the Chancellor must boost infrastructure spending in his spring statement - this would help counter the loss of confidence in the economy caused by Brexit uncertainty'.

'After eight wasted years of Tory economic failure, the people of our country simply can not afford Philip Hammond's lack of action. "This is all part of our plan to build an economy that works for everyone". The report sent Treasuries and stocks tumbling, as it added to concerns about an inflation pickup that have roiled financial markets this month.

Chris Williamson, chief economist at Markit, said: "UK inflation came in higher than expected in January, adding further pressure for policymakers to hike interest rates again, possibly as soon as May". Tuesday's CPI data showed downward pressure on inflation from a lesser increase in fuel prices than a year ago.

"The cost of entry to attractions such as zoos and gardens" was a key driver in the higher than expected reading. Excluding volatile food and energy costs, the so-called core gauge increased 0.3 percent, also above forecasts for 0.2 percent. In a globalized world, with massive overcapacity in the garment industry, and vast changes in online retailing for clothing, and tectonic shifts in consumer preferences towards cheaper generic brands rather than expensive labels-it is hard to swallow the idea that the fate of the U.S. economy hangs on the Bureau of Labor Statistics' measurement of apparel prices over the past Christmas season.

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