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UK Inflation Hits Double the Bank of England's Target for the First Time in Two Years

Strategic Insights

— 2 min read

The Office for National Statistics (ONS) reported that the Consumer Prices Index (CPI) rate of inflation soared to 4% in January, exceeding the Bank of England's 2% target for the first time in two years. This significant increase is attributed to the rise in VAT and the soaring cost of crude oil, pushing up the cost of living. Governor Mervyn King has expressed uncertainty about the inflation outlook and acknowledged real differences in opinion among Bank of England policymakers.

Key Takeaways:

  • The Consumer Prices Index (CPI) rate of inflation hit 4% in January, exceeding the Bank of England's 2% target for the first time in two years.
  • The ONS reported that the CPI rate of inflation rose by 0.1% on a monthly basis between December and January, the first time prices rose between those two months since records began in 1997.
  • The price of petrol hit a record high of 127p per litre in January, the ONS said.
  • Rising prices in transport, restaurant and hotels, furniture and alcohol made significant contributions to the increase in the overall rate of inflation.
  • The VAT hike led to a rise in restaurant and hotel bills, which were up 1.3% between December and January, and hit a record 4.5% rise on an annual basis.
  • Falling clothing prices and a drop in the cost of recreational activities, such as DVD and CD purchases, provided some downward pressure on inflation.
  • The headline Retail Prices Index (RPI) rate of inflation rose from 4.8% in December to 5.1% in January.
  • Governor Mervyn King acknowledged real differences in opinion among Bank of England policymakers regarding the inflation outlook.
  • The governor's letter to Chancellor George Osborne stated that the high level of inflation is due to the rise in VAT, the low value of the pound and rising energy prices.

Statistics:

  • The CPI rate of inflation reached 4% in January.
  • The price of petrol hit a record high of 127p per litre in January.
  • Prices of new cars were up 2.4% between December and January.
  • Second-hand cars rose 2% between December and January.
  • Restaurant and hotel bills were up 1.3% between December and January.
  • The record-high VAT hike led to a 1.3% rise in restaurant and hotel bills between December and January.
  • The annual rise in restaurant and hotel bills hit 4.5%.
  • The headline Retail Prices Index (RPI) rate of inflation rose from 4.8% in December to 5.1% in January.

Sources:

  • Office for National Statistics (ONS)
  • Bank of England
  • The Telegraph ( Jamie Grierson)

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