UK Inflation Climbs To 0.2% In December

UK inflation rose to a higher-than-expected 0.2% in the year to December, according to official figures from the ONS.

The Consumer Price Index (CPI (Other OTC: CPICQ - news) ) measure of inflation was ahead of expectations that it would remain unchanged at 0.1%.

Sterling added about a cent against the US dollar after the announcement.

It (Other OTC: ITGL - news) was the first time since January 2015 that the cost-of-living figure has been above 0.1%.

Since that time it has dipped into negative territory on a number of occasions.

The latest data showed CPI for the year as a whole in 2015 was zero, the lowest annual reading since records began in 1950.

Office for National Statistics (ONS) figures showed that the monthly figure climbed in December after air fares soared by 46% month-on-month due to the seasonal rise in flight costs over the festive season, marking the biggest leap for 13 years, with long-haul flights in particular impacted

Petrol (LSE: 0IMR.L - news) prices continued to fall, down by 3.4p a litre, although this was less than the 6.1p drop seen a year earlier.

James Tucker, head of CPI at the ONS, said: "While this modest rise takes CPI to its highest level for 11 months, it is still at historically low levels."

The Treasury pointed out that the figure continued the low inflation trend and that wages were still rising well ahead of CPI.

A slump in world oil prices has helped inflation bump along at zero for nearly a year - well below the Bank of England's 2% target.

This has extended into this month as the price of a barrel of Brent crude fell below $30 to 12-year-lows.

There is little reason for the Bank to raise the interest rate until CPI shows signs of heading higher. It has remained at 0.5% since early 2009 and economists do not expect an increase any sooner than the end of the year.

ING Bank economist James Knightley said the Bank's Monetary Policy Committee (MPC (KOSDAQ: 050540.KQ - news) ) was "under no pressure to respond" to the uptick in inflation given that it remained so low and the pace of wage growth was also weak.

Scott Bowman of Capital Economics said inflation looked set to rise further over coming months as falls in petrol and food prices fade, while inflation of imported goods should also build.

However, the recent fall in the oil price and muted pay growth should limit those rises, he added.

"Accordingly, inflation will be going nowhere fast – it is set to only average around 1% this year – and the MPC will be in no rush to push through the first rate hike," Mr Bowman said.