Brexit Inflation Juggernaut Won't Let U.K. Shoppers Off LightlyBy and
Consumer prices remain below BOE target but are set to rise
Data published Wednesday set to show no help from wages
Don’t be fooled. U.K. inflation’s slower-than-expected ascent toward 2 percent doesn’t mean the consumer is going to have it easy this year.
After price growth fell short of expectations in January, economists were quick to restate their view that energy costs and a weaker pound mean inflation is still primed to accelerate. A Bloomberg survey sees it hitting 2.8 percent by the last quarter of this year, while some say growth faster than 3 percent is more likely. And with the labor market showing signs of cooling, households could be in for a pinch this year.
Companies are saying that everything from sound systems to wine will become more expensive. Even food prices, falling consistently for almost three years as supermarkets battle for market share, are starting to turn. The rate of decline last month was the least since 2014 -- and half the pace recorded in December.
“This single point aside, we’re still on the track for potentially quite significantly above-target inflation,” James Smith, an economist at ING Bank NV in London, said by phone. “It’s going to squeeze household incomes at a time when we have falling employment and the wage outlook isn’t particularly strong either.”
The January increase in inflation to 1.8 percent fell short of the 1.9 expected. It also kept the rate below the BOE’s 2 percent target, sending the pound lower as traders pulled back on bets for a U.K. interest-rate increase this year.
But the shortfall was largely related to clothes prices, which plunged on the month to take the annual change down to zero. Upward pressure came from motor fuels and food. Pressure from those sources is set to continue: import costs are rising the fastest annual pace in almost nine years, while crude oil priced in sterling is surging the most since the turn of the century.
That’s all bad news for an economy reliant on consumer spending for growth, as wages and employment may not keep pace with rising prices. The statistics office will publish data on the labor market on Wednesday, and economists forecast employment to fall for a third month in a row as pay growth stagnates.
Consumers seem to be bracing themselves. A survey published by GfK Tuesday found that almost three out of four Britons expect rapid rises to continue, and a report by research charity IGD showed that food prices are shoppers’ top economic concern for the year ahead, followed by energy bills and gasoline prices.
— With assistance by Sam Chambers