Rocketing fuel prices drive inflation close to Bank target

INFLATION is set to come within a whisker of the Bank of England’s 2 per cent target this week for the first time in almost three years.

The surging cost of fuel and a collapse in sterling are driving prices higher, with economists expecting the Consumer Prices Index to have hit 1.9 per cent in January.

Howard Archer, chief UK economist at forecaster IHS Global Insight, said: ‘Inflation is expected to have been lifted in January by higher fuel prices and increased food prices.’ The cost of fuel surged 3.4 per cent to a two-year high in January, driving the annual increase to almost 20 per cent.

Factory gate prices charged by manufacturers are also climbing, with the annual gain likely to be over 3 per cent, economists said.

‘Inflation is on an upward path that should see it breach the [BoE] Monetary Policy Committee’s 2 per cent target in the next month or so and reach close to 3 per cent by the end of this year,’ consultancy Capital Economics said.

Rising prices are expected to slow the economy later this year, but there were signs last week that GDP growth may have accelerated recently. The National Institute of Social and Economic Research said GDP grew by 0.7 per cent over the three months to the end of January, following growth of 0.6 per cent for the last quarter of 2016.

NISER research fellow Oriol Carreras said: ‘Growth was driven by robust consumer spending combined with a pick-up in output in production industries.’