United Kingdom Inflation

United Kingdom

United Kingdom: Inflation rises to highest level in over two years

February 15, 2011

In January, consumer prices added 0.1% over the previous month, which came in well below December's 1.0% price rise and in line with market analyst expectations. Nevertheless, as the figure exceeded the 0.2% price drop recorded in the same month last year, annual inflation rose from 3.7% in December to 4.0%, reaching its highest level since November 2008. The moderate monthly increase was influenced by an increase in the standard value added tax (VAT) rate, which rose from 17.5% to 20.0% on 4 January. That said, the most important drivers behind the increase were higher prices for alcoholic beverages and tobacco (+4.6% month-on-month), which were compensated by lower prices for clothing and footwear (-5.9% mom). In its latest inflation report, the Bank of England raised its inflation expectations from 2.8% in November to 4.3%.


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