UK inflation creeps up in lockdown

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·2-min read
Shoppers at Rogers Wholesale, a supermarket which only sells food that's past its Best Before date, in Stockport, England. Photo: Anthony Devlin/Getty Images
Shoppers at Rogers Wholesale, a supermarket which only sells food that's past its Best Before date, in Stockport, England. Photo: Anthony Devlin/Getty Images

UK inflation held relatively steady last month as the country returned to lockdown.

Consumer price inflation was 0.7% in January, the Office for National Statistics (ONS) said on Wednesday. January's figure was up slightly from December's reading of 0.6%, despite a return to lockdown at the start of 2021. Economists had forecasted a rate of 0.5% for the first month of this year.

“Inflation has started 2021 in much the same vein as it finished 2020, low and moving sideways," said Laith Khalaf, a financial analyst at stockbroker AJ Bell.

Furniture and routine maintenance costs were the biggest contributors to rising prices. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said increased furniture costs reflected "the impact of the recent increase in shipping and Brexit-related costs on the price of imported consumer goods".

Food prices also rose, which Khalaf said could be linked to Brexit.

"The January price variation of some common food items like cauliflowers, crisps and fish fingers suggests there may have been some temporary Brexit disruption at play too," Khalaf said.

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January sales meant clothing and footwear put downward pressure on inflation. Clothing prices fell by 4.6% in January and half of all items looked at in the ONS' sample were on sale last month.

"Between December 2020 and January 2021, there was a notable increase in the proportion of items marked as being discounted, particularly for men’s clothing," the ONS said.

UK inflation fell 0.2% month-to-month in January. Economists cautioned against reading too much into the data. It remains to be seen whether any effects from Brexit will prove temporary and permanent. The ONS' methodology also means it calculated that hotel and accommodation prices rose last month even as they were shut due to lockdown.

Inflation remains well below the Bank of England's (BOE) target of 2%. Economists said inflation has been kept low by temporary tax cuts and collapsing oil prices over the last year. Oil prices have rebounded sharply since November and will likely begin to feed into higher inflation as petrol prices increase.

"The inflation rate is likely to remain below 1% until April, when the VAT reduction on hospitality expires and higher energy prices feed through," said Brian Hilliard, chief UK economist at Societe Generale. "Nevertheless, we expect it to remain below the 2% target for a long time."

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