UK inflation moved upwards primarily driven by higher food prices and lower discounts on household goods. According to the Office for National Statistics, the Consumer Price Index (CPI) had increased to 0.7% during January 2021 as compared to an increase of 0.6% shown during December 2020.
The inflation figure is still lower than the Bank of England’s (BoE) target of 2.0%. However, the BoE had anticipated that inflation would accelerate during the spring, driven by several factors like the expiration of an emergency cut in value-added tax for the hospitality sector and increased global oil prices. The rise in inflation may also be driven by the fact that Britain-based shoppers are keenly waiting for the easing of Covid-19 related restrictions so that they can hit the shops and spend all the money they saved during the lockdowns. Therefore, it would be interesting to see whether UK inflation would hit BoE’s target of 2% by the end of 2021.