Inflation hits highest level in more than two years

Households are facing the highest inflation backcloth in well over two years, official data is set to show this week.

Consumers are facing inflationary headwinds following the Brexit vote. Picture: Neil Hanna

The Office for National Statistics (ONS) is expected to reveal that the consumer prices index (CPI) rose to 1.4 per cent in December compared with a year earlier.

This would be the highest rate since August 2014 and up from 1.2 per cent in November. Analysts said that the fall in the value of the pound following June’s unexpected Brexit vote, raising the price of imported goods, continued to be a key driver of current inflation.

Meanwhile, the cost of petrol has gone to an 18-month high as the oil price has continued its partial recovery.

Howard Archer, chief UK economist at IHS Global Insight, commented: “In addition to deteriorating fundamentals for consumers, we suspect economic activity will be increasingly pressurised by major uncertainties facing business, which are likely to be magnified in 2017 once the UK triggers Article 50 (the start of Britain’s exit from the EU expected in March).”

City analysts believe that inflation, although still low by historical standards, will rise above the Bank of England’s medium-term 2 per cent target within the next few months.

Separate ONS data this week is expected to show a robust UK employment market, with only a small rise in unemployment to 4.9 per cent in November from 4.8 per cent in October.

It is expected to be cited as further evidence that the UK economy has not been harmed by the Brexit vote.

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