Inflation hits 12-month high

This is the third consecutive month of small increases, with the rate in January 2016 hitting a twelve-month high.

The main contributors to the rise in the rate were motor fuels, and to a lesser extent food, alcoholic beverages and clothing.

Air fare prices partially offset the rise in the rate, falling by more than they did a year ago. This followed a large increase in prices in December 2015.

Nick Dixon, Investment Director at Aegon UK, commented:

“Prices are ticking up with the latest reading exceeding the 11-month high it hit at the end of last year, but at this rate it will be many months before the UK is back to target. Though a sign of improving economic health, stock market volatility threatens price growth in the medium term and policymakers will be hoping that economic uncertainty does not filter down to consumer confidence.”

Ben Brettell, Senior Economist at Hargreaves Lansdown, added:

"UK inflation has reached its highest level in a year, equalling the 0.3% seen in January 2015. This continues the trend of inflation being at or very close to zero and confirms the complete absence of pressure on the Bank of England to lift interest rates.

"The headline rate continues to be largely driven by volatile fuel prices. The largest contribution to higher inflation was from motor fuels – although prices fell 2.6% between December and January, twelve months ago prices fell by 6.8%. If the recent oil price rally is sustained, we could see inflation continue to tick upwards in the coming months, though the Bank of England said earlier this month that inflation would likely undershoot the 2% target until 2018.

"Core inflation, which strips out volatile components like food and energy, is a better measure of the underlying inflationary pressures in the economy. It fell by more than expected to 1.2% in January (from 1.4% the previous month). The trajectory of wage growth is a key driver for inflation, and figures released tomorrow are expected to show a further deceleration.

"All in all, domestic inflationary pressures remain notable by their absence. Even Ian McCafferty, the most hawkish member of the MPC said yesterday that he withdrew his vote for higher interest rates because he feels inflationary forces have receded in recent months. There looks no reason to suggest the era of ultra-low interest rates will come to an end any time soon."