Investment Clock insights

Inflation rises, but expect no bank action until 2019


Ian Kernohan

14 February 2017

UK inflation, as measured by Consumer Price Index (CPI), rose to 1.8% in January. This rate was still below target, but was the highest inflation figure since June 2014, driven by rising fuel prices and a gradual end to food price deflation.  These inflationary pressures were partially offset by clothing and footwear prices, which fell by more than they did a year ago.
We expect CPI to rise further and move above target later in the year, as the impact of sterling devaluation takes time to feed through.  This will squeeze real earnings growth to close to 0%, unless wages rise by more than we expect. We see no interest rate increase from the Bank of England this year or next.

UK inflation, as measured by Consumer Price Index (CPI), rose to 1.8% in January. This rate was still below target, but was the highest inflation figure since June 2014, driven by rising fuel prices and a gradual end to food price deflation. These inflationary pressures were partially offset by clothing and footwear prices, which fell by more than they did a year ago.

We expect CPI to rise further and move above target later in the year, as the impact of sterling devaluation takes time to feed through.  This will squeeze real earnings growth to close to 0%, unless wages rise by more than we expect. We see no interest rate increase from the Bank of England this year or next.

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.