LONDON (Reuters) -British inflation sped up by more than expected to hit a 10-month high of 3.0% in January and it is likely to rise further soon, testing the Bank of England’s confidence that price pressures are on a downward path over the longer term.
Economists polled by Reuters had expected a headline inflation reading of 2.8%, pushed up from December’s 2.5% rate by factors including an increase in a cap on bus fares and a tax hit to private school fees by the government of Prime Minister Keir Starmer.
The BoE had also forecast a January inflation rate of 2.8%.
The central bank expects consumer price inflation to peak at 3.7% in the third quarter of this year, driven mostly by higher energy costs and regulated tariffs for items such as domestic water supply.
But Governor Andrew Bailey and his colleagues say a slowdown in the jobs market is likely to keep a lid on higher wage demands this year after an acceleration in late 2024, limiting the risk of a build-up of inflation pressure.
Sterling rose after the figures were published before quickly settling back to its pre-release level.
Services inflation – a key gauge of price pressures for the central bank – stood at 5.0% in January compared with 4.4% in December, the ONS said. The economists polled by Reuters and the BoE had forecast it would pick up by more to 5.2%.
Core inflation, which excludes energy, food, alcohol and tobacco prices, rose to 3.7% from 3.2%. The Reuters poll had pointed to a reading of 3.7%.
(Writing by William Schomberg; Editing by Kate Holton and David Milliken)
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