Inflation surged at its fastest pace in 10 months in January, dealing a setback to expectations of a Bank of England interest rate cut in March.
According to the Office for National Statistics (ONS), the Consumer Price Index (CPI) rose to 3.0% in the year to January, up from 2.5% in December.
Core inflation, which excludes energy and food prices, also climbed from 3.2% to 3.7%. Analysts had anticipated a more modest rise, forecasting a headline rate of 2.7% and core inflation of 3.6%.
ONS chief economist Grant Fitzner noted that prices were rising at their fastest rate since March last year.
“The increase was largely driven by airfares not falling as much as usual for this time of year, influenced in part by the timing of Christmas and New Year flights,” he explained.
“Food and non-alcoholic drink prices also rose, reversing last year’s decline, with notable increases in meat, bread, and cereals.
Private school fees were another key contributor, surging nearly 13% this month due to the introduction of new VAT rules.”
Bank of England unlikely to lower rates in March.
The Bank of England anticipated an uptick, but not at this pace, heightening concerns that the MPC may not reduce rates as much as many had hoped.
Traders see slim chances of a Bank of England interest rate cut next month.
Money markets now suggest less than a 10% probability of a rate reduction in March, down from nearly 13% before data revealed inflation had risen to 3% in January.
