Pressure mounts for new rates rise

Inflation came in higher than expected last month, ratcheting up pressure on the Bank of England to hike interest rates as soon as May.

Figures from the Office for National Statistics (ONS) show the Consumer Prices Index rate of inflation came in at 3% last month, unchanged from December but lower than the most recent peak of 3.1% in November.

Economists were pencilling in a drop to 2.9%.

Ben Brettell, a senior economist at Hargreaves Lansdown, said it would have marked the first step towards bringing inflation back to the Bank’s 2% target.

“Inflation’s now been above target for 12 straight months,” Mr Brettell said.

“This adds further weight to the case for higher interest rates sooner rather than later.”

Mr Brettell said it now looks like the next rise could come in May.

While the ONS reported signs of weaker price rises for fuel and food last month, those were offset by a shallower fall in leisure costs.

Business economist Chris Williamson of IHS Markit said inflation is likely to remain “stubbornly high for some time to come”, but warned an interest-rate hike should not be taken for granted.

“While the door remains open for a May interest-rate hike, the Bank of England will likely need to see indicators of the economy’s health improve to be sufficiently reassured that the economy is ready for another rise in borrowing costs.”

The Retail Prices Index, a separate measure of inflation, edged lower to 4.0% last month from 4.1% in December.

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