UK inflation remains at 3% yoy in January, close to a 6-year high peak in November 2017. The CPI is pretty high and surprised economists, who expects to slow down to 2.9%. Last week, the Central Bank of England signaled that interest rates could be raised faster and more than expected, with inflation targeting close to 2% over two years instead of three. The investors consider the next interest rates hike to be in May and then again in November.
The UK’s main interest rate is currently 0.5%. If the central bank increases it in line with market expectations, the rate should reach 1% at the end of the year.
According to the latest data, the food price growth is slowing down since 2016, but there is an increase in recreational and cultural spending, clothing and footwear, transport and others.
The UK inflation is rising after the vote for Brexit in 2016, as weakening pounds makes imported goods more expensive.
“Higher than expected inflation in January further exacerbates pressure on central bankers to raise interest rates”, said Chris Williams, chief economist at IHS Markit.
The UK economy slowed down sharply in January after the PMI in the service sector fell to a 16-month low of 53 points.
The analysts say it is likely to increase the gap between the British economy that Brexit expects and other countries that benefit from global growth. Combined with the data on the manufacturing and construction sector, that were worse than expected, the results on activity in the service sector show that the sixth largest economy in the world is growing at the slowest pace since the Brexit vote.