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UK inflation rate inches up to 12-month high

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February 17
6:19 AM 2016

The UK's headline rate of inflation edged up to 12-month high, but it remained below the target of Bank of England for two years. The consumer prices index rose as petrol price fell slowly in January 2016. All eyes on UK's central bank whether it'll raise interest rate or not. 

The inflation rate in the UK's economy rose for three month in a row. Considering the key factors such as the oil prices were hovering at 12-year low, the ongoing price war among supermarkets and sluggish wage rise, economist forecast a one percent rise in inflation by the end of 2016. 

Financial Times reports that the inflation rate is expected to return to two percent target, recorded in December 2013, until the first quarter of 2018. The core inflation rate was 1.2 percent for January 2016. Core inflation without volatile components, it gauges domestically produced price pressure. The Bank of England (BoE) stressed that next step in interest rate towards uptick. 

Several economists forecast narrow range of movements in inflation rate in coming days. Chris Hare of Investec said: "It would be a slow grind away from low inflation." Alan Clarke, an economist at Scotiabank, expects prices to move sideways for most part of the year. David Kern, Chief Economists at the British Chambers of Commerce, said: "Inflationary pressure would remain muted for the foreseeable future."

In January, UK's central bank downplayed the interest rate prospects as it shrugged off the inflation, growth and wage forecasts. The government's borrowing costs reached to the lowest level. Banking stocks and bonds suffered from selling pressure as investors shifted their focus to safe havens. The US markets on expected line returned on a sharp move higher. Dow Jones Industrial Average rose 163 points or one percent, while S&P 500 index gained one percent and Nasdaq moving up 1.4 percent, as reported by The Guardian.

The European markets were in mixed range after the meeting of some oil producers, who agreed on production cut. Contrary to this, they failed to implement production cuts from January levels. The FTSE 100 rose 32 points or 0.5 percent. Germany's DAX eased 0.6 percent. France's CAC was trading flat. Brent oil marginally moved up 0.4 percent to $33.53 a barrel. 

Motor fuels, food and clothing prices propelled inflation rate upwards in the UK economy. The consumer prices rose 0.3 percent annually after a 0.2 percent gain in December 2015, as reported by Bloomberg. Core inflation eased to 1.2 percent from 1.4 percent, according to the latest data from Office for National Statistics (ONS) in London. The 1.2 percent of inflation rate is below the two percent target of UK's central bank. 

Actually, there's no inflationary pressure that worries the central bank. Economists expect that central bank's policy to remain stable until the referendum. The UK's economy doesn't yet warrant a rate rise from the record low of 0.5 percent. The average economic outlook is the prospect of referendum may be before June Britain's membership in the European Union. It may hurt investor sentiment and consumer confidence.

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