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British inflation edged up in January as consumers hunkered down with new sofas and duvets and spent more on food, video games and other home entertainment as they went into a third national coronavirus lockdown.
Annual consumer price inflation rose to a three-month high of 0.7% last month, and many economists expect it to overshoot the Bank of England’s 2% target later this year as temporary tax cuts and a cap on household fuel bills expire.
“That would knock on the head any lingering hopes of more policy stimulus from the Bank of England, although we doubt it would prompt tighter monetary policy, either,” said Paul Dales, chief UK economist at Capital Economics.
Customs fees and transport disruption caused by new post-Brexit red tape might also push up prices, though the Office for National Statistics said it saw no evidence of this yet.
Yields on 10- and 30-year British government bonds extended their recent climb and briefly hit their highest since March 2020 after Wednesday’s data. Inflation worries have lifted yields globally as investors prepare for more fiscal stimulus in the United States.
Economists polled by Reuters had mostly thought the consumer price index would hold at December’s 0.6% increase.
Food and drink prices rose by 0.6% from December to January, compared with a 0.2% fall over the same period a year earlier. Furniture and household goods prices dropped by 1.5%, a smaller decline than a year earlier at a time of year when there are normally big seasonal sales.
The costs for “games, toys and hobbies” was 3.4% higher than a month earlier, adding materially to overall inflation.
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