Data released by the Office for National Statistics this week is likely to show an uptick in inflation, a sign that the fall in the value of the pound is having an impact on prices.
An inflation rate of 1.5 per cent in the consumer prices index for December would be a significant increase on 1.4 per cent for November, and 0.9 per cent for October. This would bring the average rate of inflation to 0.7 per cent for 2016, after a flat 2015, and the highest rate seen since August 2014. Economists are expecting inflation to reach the Bank of England’s target of two per cent soon, and continue on to reach 2.5 per cent by June.
Higher fuel prices are also believed to have been a reason behind for the rise, with global oil prices now at an 18-month high. The RAC recently reported that prices for petrol and diesel had gone up by 3p/litre in December to reach their highest since July 2015.
The British Retail Consortium remarked in their December survey that “the majority of the categories we monitor, particularly non-food, saw month-on-month increases in prices, with clothing and footwear seeing month-on-month inflation for the first time in nearly two years”. Despite having a good Q4, retail sales are expected to have softened in December, following strong performance in the proceeding two months.
Alan Clarke, an economist at Scotiabank, had warnings for what the data might mean for the UK economy “with headline average earnings growth down to just 2 per cent, real earnings growth will turn negative...In turn, this is likely to be the main reason to expect economic growth to slow, as non-existent real earnings growth holds back household consumption.”
Also released on Wednesday will be the monthly labour market data. Analysts at INS Global Insight say they are anticipating “cracks” to show in the UK employment rate.
Howard Archer, chief UK and European economist at IHS Global Insight said “the upside for consumer price inflation should be constrained by markedly weaker UK economic activity over the coming months and softer labour markets limiting domestic price pressures. Slack in the economy is likely to widen anew, while companies will be keen to keep earnings growth down to contain cost".