Finance

GBPEUR - Has UK inflation peaked?

GBPEUR - Has UK inflation peaked?”

Data released by the Central Statistics Office (CSO) on Friday showed inflation, measured by the Consumer Price Index (CPI), accelerated to a 17-month high of 5.21% in December from 4.88% a month ago.

Tuesday's official data showed growth in food prices slowed in December while airline fares rose less strongly than a year earlier, also pushing down on the overall inflation rate. The ONS figures seem to offer proof the Bank of England is right and the worst effects of the fall in the pound have now filtered through. "The dip in inflation for primary food articles in the WPI for December might signal some correction in the CPI inflation for food items in the ongoing month", says Aditi Nayar, principal economist, Icra. Outstanding price rises last month included fashion and footwear (4.3%) and transport (0.6%).

The inflation of fuel and power has shot up 1.5 per cent on rising crude prices in the global market.

"Such a scenario could represent a real challenge to United Kingdom consumers, as with real GDP growth somewhat muted and no wage hike pressures, the bank could look through rising commodity prices as short-term, creating the risk of stagflation for savers and investors". 'Big themes like an ageing demographic and the rise of disruptive technologies are exerting downward pressure on prices, ' he notes.

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Seaton also encouraged consumers to use platforms to keep an eye on spending, to help secure better mortgage and credit card rates.

The British Retail Consortium's (BRC) head of retail insight and analytics Rachel Lund added: "We are likely to continue to see inflation falling back this year as, 18 months on from the referendum, currency impacts have mostly fed through and are now falling out of the yearly calculations".

"I see no reason why United Kingdom inflation will not gradually return to the very low levels which persist among our developed world peers", Brettell said. "I would be somewhat surprised if rates were higher than 0.75% by the end of the year".

Maike Currie, investment director for personal investing at Fidelity International, said: "While price pressures may have eased slightly, this will be cold comfort to cash-strapped consumers who are still suffering a pay cut in real terms as inflation continues to outpace wage growth (including bonuses) at around 2.5%". Evidence of such a shift would likely lead policymakers to increase interest rates more quickly.



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