UK inflation ticked higher to 0.7% in January, driven by rising prices of food and household goods.
According to figures released by the Office for National Statistics, inflation was up from 0.6% in December.
Food, household goods and furniture drove the figure higher, while clothing and footwear imposed downward pressure, as stores cut prices to deal with a third national lockdown imposed after coronavirus cases spiked in December.
The figure is still well below the Bank of England’s 2% target, but there is some concern that a rapid rise could follow the easing of Covid-19 restrictions when Britons can hit the shops and start spending cash saved up during months of lockdown.
Jai Malhi, global market strategist at JP Morgan Asset Management, said that a mix of supply distortions from Brexit and Covid-19, alongside a strong demand recovery, could create ‘a recipe for higher prices across both the goods and services sectors’.
‘Inflation is likely to start testing the Bank of England’s 2% target later in the year when the UK consumer is able to unleash some of the £125bn of additional savings they’ve accumulated during lockdowns, particularly if they run into supply bottlenecks,’ he said.
Ian Warwick, managing partner at Deepbridge Capital, said the data confirms a challenging environment for investors ‘as a long period of low-interest rates combined with lockdowns has resulted in a scenario where many consumers have accumulated a comparatively high level of savings in a low-return environment’.
Premier Miton’s chief investment officer, Neil Birrell, was less concerned, saying there is nothing to suggest inflation is roaring back.
‘Looking ahead, what we hear on Monday about the easing of lockdown restrictions will drive the view of where inflation is heading and that is undoubtedly upwards as we go through the year,’ he said.