The rate of Consumer Prices Index inflation increased to 3% in January from 2.5% in December – its highest level for 10 months – the Office for National Statistics said. CPI was expected to have come in at 2.8%, according to a consensus of analysts.
ONS chief economist Grant Fitzner said: “Inflation increased sharply this month to its highest annual rate since March last year. “The rise was driven by air fares not falling as much as we usually see at this time of year, partly impacted by the timing of flights over Christmas and New Year. This was the weakest January dip since 2020.
“After falling this time last year, the cost of food and non-alcoholic drinks increased, particularly meat, bread and cereals.”
Rachel Reeves said her “number one mission” was getting “more pounds in pockets”. The Chancellor said: “Getting more money in people’s pockets is my number one mission. Since the election we’ve seen year on year wages after inflation growing at their fastest rate – worth an extra £1,000 a year on average – but I know that millions of families are still struggling to make ends meet.
“That’s why we’re going further and faster to deliver economic growth. By taking on the blockers to get Britain building again, investing to rebuild our roads, rail and energy infrastructure and ripping up unnecessary regulation, we will kickstart growth, secure well-paid jobs and get more pounds in pockets.”
It represents a rise from 2.5% in December, when the rate eased back. Economists have said higher private school fees, driven by the Labour Government’s move to end the long-standing VAT exemption for private schools on January 1, will be a major cause of the rise.
From the start of this year, many schools passed price increases onto parents after the standard rate of 20% was applied to private school education and boarding fees. Economists at Pantheon Macroeconomics has said however that private school fees are a “wild card” with limited information regarding schools’ price plans.
They said they are assuming a 14% month-on-month increase in primary and secondary school fees. Airfares are also expected to swing higher for January because of seasonal price increases.
Both of these factors are expected to contribute to a jump in services inflation. Services inflation is among readings closely watched by the Bank of England as it considers interest rate policy in a bid to keep inflation down.
Inflation is expected to keep rising over the coming months, moving further away from the 2% target rate set by the Bank of England and the Government. Earlier this month, the central bank said inflation is expected to keep rising to a peak of 3.7% in late summer.
It predicted the inflation rise as it also reduced its growth forecast for 2025, predicting that gross domestic product (GDP) will rise by 0.75%, half of its previous projection.
Tax hikes and wage increases linked to the Labour Government’s October Budget are expected to contribute to the acceleration in inflation later this year.
Pantheon predicted CPI inflation will hit 3.4% in April, as rises to business national insurance contributions come into force, alongside an increase national minimum wage.