Brexit casts shadow over outlook for UK inflation

● Latest figures show uptick to 1.9% during February ● Bank of England widely expected to keep rates on hold

Inflation remains below the Bank of England’s target despite a modest uptick last month though the outlook is clouded by Brexit uncertainty.

Official figures yesterday showed that the consumer prices index (CPI) measure of inflation rose to an annual rate of 1.9 per cent last month.

Economists had expected inflation to hold steady at 1.8 per cent, after the January rate came in below the central bank’s 2 per cent target for the first time in two years.

CPI including owner-occupiers’ housing costs (CPIH) – the Office for National Statistics’ (ONS) preferred measure of inflation – was unchanged at 1.8 per cent in February.

The price of food nudged 0.4 per cent higher on the month compared with a 0.1 per cent increase last year and a 0.9 per cent rise on the month for alcohol and tobacco versus flat prices in February 2018.

Beer in particular showed an increase, up 0.6 per cent between January and February compared with a decline of 1.1 per cent a year earlier. Annually, food and alcohol inflation hit 1.1 per cent and 5.1 per cent respectively.

However, clothing and footwear prices had a downward effect. Although price tags were higher in February as usual, following the January sales, the increase was smaller than the same period last year. Mike Hardie, head of inflation at the ONS, said: “The rate of inflation is stable, with a modest rise in food as well as alcohol and tobacco offset by clothing and footwear prices rising by less than they did a year ago.”

Howard Archer, chief economic adviser at the EY Item Club think-tank, said: “While February’s rise in inflation may be marginally disappointing for consumer purchasing power, it is still looking appreciably better than in mid-2018 – especially as earnings growth retained its firmer tone in January.

“Real earnings growth is currently 1.5 per cent, the best level since end-2016, although still appreciably below longterm norms.”

He added that different Brexit outcomes were likely to impact inflation in coming months.

“Our suspicion is that inflation will spike significantly higher if the UK leaves the EU without a deal primarily due to a likely marked fall in sterling even though the government has indicated that under a temporary scheme 87 per cent of imports by value would be eligible for zero-tariff access compared to 80 per cent of imports currently being tariff free,” he noted.

Meanwhile, the retail prices index (RPI) came in at 2.4 per cent, down from 2.5 per cent in January. It is the lowest since October 2016 when it was sitting at 2.2 per cent.

The figures came ahead of the latest Bank of England interest rate decision – due today – with a freeze widely anticipated.