The UK’s annual inflation rate was the highest of the G7 countries in February, statistics released today showed, due in part to the fall in the value of the pound pushing up the cost of imported goods.
Britain’s inflation rate in February was 1.8 per cent compared to an inflation rate in the Eurozone of 1.5 per cent, data compiled by the Organisation for Economic Co-operation and Development (OECD) revealed.
The UK’s rate was the closest of the G7 – the seven largest advanced economies in the world – to the two per cent rate that countries desire.
Central banks, which are responsible for money and prices in the economy, aim for a two per cent rate to avoid extreme changes and maintain confidence in future prices.
Annual inflation in the G7 Eurozone economies grew in February but remained well below the two per cent level. Germany registered a 1.5 per cent annual inflation rate, France 1.3 per cent, and Italy 1.1 per cent.
The annual inflation rate in the US fell in February compared to the month before, dropping to 1.5 per cent from 1.6 per cent.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The UK has generally seen higher inflation recently because of sterling depreciation, that drove inflation up to above three per cent at the end of 2017.” A fall in the value of the pound makes foreign currencies and so foreign goods more expensive.
“That’s arguably not a positive development for the economy. That led to a period of falling real wages of households which has now thankfully subsided.”
Britain’s annual rate of consumer price index including housing (CPIH) inflation of 1.8 per cent in February was below the 2018 average of 2.3 per cent.
Tombs said this was “primarily because oil prices have fallen back over the last six months and the energy regulator Ofgem has forced a reduction in standard variable tariffs”.
He added: “In the Eurozone case, economies still have a fair amount of capacity. The unemployment rate is still above its typical levels in the 2000s, so that has constrained wage growth and meant that the inflation rate hasn’t picked up as much.”