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United Kingdom inflation saw an unexpected surge in January, rising to 3% from 2.5% in December, marking the fastest price increase in ten months.
The spike was driven by rising food prices, higher airfares, and an increase in private school fees.
Essential food items such as meat, eggs, butter, and cereals have become more expensive compared to a year ago, compounding concerns for many households already bracing for higher energy and water bills later this year.
The government has warned that the path to lower inflation will be “bumpy,” while the Conservatives and Liberal Democrats have blamed Labour’s tax policies for the latest increase.
Grocery costs rose by an average of 3.3% last month, with some staples seeing even sharper increases in olive oil and lamb prices jumped by 17% and 16%, respectively.
The rise in inflation precedes predicted hikes in energy, water, and council tax bills in April, which are expected to further strain household budgets.
The government has announced an increase in the minimum wage, along with higher benefits and state pensions.
However, businesses warn that these measures, coupled with rising National Insurance, could lead to higher prices as they seek to offset costs.
Air travel also contributed to January’s inflation rise. Plane ticket prices typically drop after the holiday season, but the decline was smaller than in previous years, according to the Office for National Statistics (ONS).
Meanwhile, private school fees surged by about 13% following the addition of VAT from 1 January, after the government removed the sector’s tax exemption.
The inflation rate was higher than the 2.8% predicted by analysts, prompting speculation about the Bank of England’s next move on interest rates.
Inflation had peaked at 11.1% in October 2022, leading the Bank to raise rates to curb spending. With inflation easing, borrowing costs had started to fall, and the Bank recently cut rates to 4.5%. However, with inflation still above the Bank’s 2% target, economists suggest future rate cuts may now proceed more cautiously.
Professor Jonathan Haskel, a former member of the Bank of England’s interest rate-setting committee, told the BBC that policymakers could “take no signal” from the latest inflation spike and continue gradual rate cuts or view it as a “harbinger of more to come” and reconsider their approach.
ONS chief economist Grant Fitzner noted that the VAT charge on private schools was a “one-off” factor in January’s inflation jump.
However, Sarah Coles, head of personal finance at Hargreaves Lansdown, warned that rising wage bills for supermarkets and producers could mean further food price increases in the coming months. “This is on top of rises in everything from water bills and council tax—which is why it has become known as Awful April,” she said.
James Murray, exchequer secretary to the Treasury, admitted that getting inflation back to 2% would be “bumpy.” “We are in a different world than we were a few years ago under the previous government, where inflation was routinely double digits,” he said.
“The Bank of England has been clear that they expected inflation to be slightly higher in the first half of this year…. but we’re confident in our plan for change to make sure that we’re kick-starting economic growth by making the reforms that are necessary to boost economic growth right across the country.”
However, shadow chancellor Mel Stride blamed Labour’s “tax hikes and inflation-busting pay rises” for the extent of January’s inflation rise. Liberal Democrat Leader Ed Davey echoed these concerns, warning: “The chancellor’s misguided policies are putting us at risk of a new era of stagflation. The economy still isn’t growing, and now people are being hit in their pockets too.”
Ruth Gregory, deputy chief UK economist at Capital Economics, said the latest inflation figures would be “uncomfortable” for the Bank of England but doubted they would halt further interest rate cuts.
“The risk is that the rise in inflation proves more persistent and rates are cut more slowly than we expect, or not as far,” she added.
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