Home Business NewsBusinessBanking News Inflation expected to be higher in January which will impact interest rates

Inflation expected to be higher in January which will impact interest rates

by Thea Coates Finance Reporter
13th Feb 24 4:05 pm

It is expected that the Chancellor will be hit with a major blow on Wednesday as economists are predicting inflation will have climbed in January for the second time in a row.

This comes as in December inflation rose to 4% and economists are expecting he figures will show that Consumer Prices Index inflation has climbed to 4.2% for last month.

Households will dealt with a hammer blow because costs are rising at the fastest rate than the end of 2023, despite inflation being less than half the previous year.

Samuel Tombs, the chief UK economist at Pantheon Macroeconomics is expecting inflation to hit just 4.1% and that this month inflation will fall to 3.4%.

The Bank of England’s (BoE) Monetary Policy Committee (MPC) have the job to try and keep inflation to as low as 2%.

Should inflation be higher than 4.1% then it is likely there will be delays to seeing interest rates being slashed.

Rob Morgan, chief investment analyst at Charles Stanley said, “Today’s wage rises contribute to tomorrow’s spending power, impacting demand and influencing inflation, so the Bank will be keenly monitoring average earnings growth in particular.

“Resilient wages have been a driver of sticky consumer price inflation, and they are not falling back into line as fast as the BoE (Bank of England) would like as it looks to return inflation to the 2% target.

“What’s more, a further inflationary impulse could lie in wait in the form of an increase to the national minimum wage of almost 10% from April, which stands to simultaneously increase costs for employers and bolster household spending power, potentially exerting further upward pressure on prices.”

Martin Beck, chief economic adviser to the EY Item Club, said: “On balance, the EY Item Club thinks the latest pay data should further calm the MPC’s concerns about the threat posed by a tight labour market to achieving low inflation on a sustainable basis.

“The committee will likely want to assess the impact of April’s sizeable rise in the national living wage before it’s sufficiently reassured on that subject.

“But the EY Item Club continues to think the MPC will start cutting interest rates in May, with a series of further reductions in bank rate following over the course of this year.”

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