UK inflation is anticipated to have reached a 10-month peak in January, signalling a persistent intensification of price pressures that has caused the Bank of England (BOE) to hesitate on implementing interest rate reductions.
This Wednesday, the forthcoming data is expected to reveal a consumer price increase of 2.8 percent from the previous year, propelled by rising private school fees and the offsetting of factors that had previously dampened inflation in December, as per economists surveyed by Bloomberg.
The data is likely to bolster concerns among BOE rate-setters about a worsening inflation outlook in Britain, at a time when the economy shows signs of stagnation.
An expected rise in energy costs is projected to push consumer-price growth to a peak of 3.7 percent later in the year.
Despite two officials advocating for a significant half-point reduction earlier this month, the majority on the UK central bank’s committee advocate for a cautious approach towards cutting borrowing costs, citing ongoing inflation risks.
Particularly alarming is an expected rise in core inflation metrics, which the BOE monitors closely for signs of domestic economic pressures.
Service sector inflation, for example, is predicted to surge from 4.4 percent to 5.2 percent, influenced by volatile factors such as airfares and an increase in private school fees following their recent VAT inclusion by the Labour government.
Attention will also turn to the labour market this week, with forecasters predicting that data released on Tuesday will show an increase in wage growth excluding bonuses to 5.9 percent in the fourth quarter, up from 5.6 percent.
Although the British job market appears to be softening, wage pressures are expected to remain too potent for inflation to align closely with the BOE’s target of 2 percent.
Current data indicates that UK job redundancy notices are significantly lower than the levels observed a year ago, suggesting that firms, still cautious from recruitment challenges in the post-Covid tight labour market, are hesitant to dismiss staff and are instead opting to hoard labour.
