Open Close

UK inflation hits 1.6%

Higher air fares and food prices in December helped drive UK inflation to its highest rate for two-and-a-half years.

The Office for National Statistics (ONS) said on Friday that the Consumer Prices Index (CPI) rose by 1.6% in the year to December 2016, compared with a 1.2% rise in the year to November 2016.

The rate was the highest seen since July 2014, when it was also 1.6%.

ONS head of inflation Mike Prestwood noted that while inflation was higher in December it was still below the Bank of England’s 2% target.

“Rising air fares and food prices, along with petrol prices falling less than last December, all helped to push up the rate of inflation,” he said.

“Rising raw material costs also continued to push up the prices of goods leaving factories.”

Separate figures for producer price inflation showed that the prices of goods bought from factories were up 2.7% in December compared with a year ago, as manufacturers started to pass on higher input costs following the fall in the pound.

The prices paid by manufacturers for raw materials and energy jumped by 15.8% year-on-year, the biggest increase since September 2011.

Analysts warned that prices are likely to continue rising over the course of 2017.

BBC News quoted Tom Stevenson, an investment director at Fidelity International, who said: “Inflation is back with a vengeance.

“With more hints from the UK government that a hard Brexit is on the cards, we could see sterling fall even further in the lead-up to the prime minister pulling the trigger on Article 50. This will translate into further inflation in the short term.”

Conor D’Arcy, policy analyst at the Resolution Foundation thinktank, quoted by the Guardian, said the latest inflation figures showed that the days of very low price rises were “well and truly over”.

“It will be years until we see the overall economic impact of Brexit, but the one dead cert in 2017 is rising inflation — fuelled by a sharp fall in the pound,” D’Arcy said. “With nominal pay only expected to rise by 2.4% in 2017, the risk is we see a fresh pay squeeze with rising prices eating up all pay growth by the end of the year.”