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UK consumer prices hit new 30-year high as inflation rises to 5.5%

UK inflation
UK inflation: The main offsetting upward contributions to the monthly rate came from housing and household services, food and non-alcoholic beverages, and alcohol and tobacco. Photo: Tolga Akmen/AFP via Getty Images

The UK inflation rate rose by 5.5% in the 12 months to January, up from 5.4% in December 2021, reaching a new 30-year high.

This was ahead of the 5.4% figure that economists expected, marking an acceleration for a four consecutive months, and adding to the current cost of living squeeze.

The latest figures were the highest reading since March 1992, when inflation stood at 7.1%.

On Wednesday, the Office for National Statistics (ONS) revealed that the index that excludes volatile items quickened to a record 4.4%, this was the highest CPI 12-month inflation rate in the National Statistic series, which began in January 1997.

On a monthly basis, CPI fell by 0.1% last month, compared with a fall of 0.2% in January 2021.

Chart: ONS
Chart: ONS

Price falls in clothing and footwear, and transport led to the largest downward contributions to the monthly rate in January.

The main offsetting upward contributions to the monthly rate came from housing and household services, food and non-alcoholic beverages, and alcohol and tobacco.

Electricity prices rose by 19.2% over the last year, with gas prices surging 28.3%, while average petrol prices were 145.1p per litre in January 2022, compared with 116.6p per litre a year ago.

That means motorists paid nearly 25% more to fill their tanks last month.

"We understand the pressures people are facing with the cost of living. These are global challenges, but we have listened to people’s concerns and recently stepped in to provide millions of households with up to £350 to help with rising energy bills," chancellor Rishi Sunak said.

“We’re also helping people on the lowest incomes keep more of what they earn by cutting the Universal Credit taper rate, and freezing alcohol and fuel duties to keep costs down. In total we’re providing support with the cost of living worth over £20bn across this financial year and next.

Watch: How to keep energy bills down amid cost surge

Becky O’Connor, head of pensions and savings at Interactive Investor, said: "With every confirmation of the inexorable increase in price rises, it becomes harder for families to see beyond getting through the next week, never mind the next few years.

"Surviving the here and now makes future-proofing harder. Life plans are being put on hold as daily living costs increasingly suck up earnings and benefits. For many, there is little if anything left to play or plan with.”

Read more: UK wage growth lags behind inflation as cost of living squeeze continues

The inflation rate is currently more than double the Bank of England’s (BoE) 2% target. It is expected to reach over 7% by Spring, when a 54% surge in energy bills is due to take effect in April, and the chancellor’s tax rises come into place, before starting to come down.

The surging cost of living is raising expectations that Threadneedle Street will further hike interest rates at its next meeting in March.

Jack Leslie, senior economist at the Resolution Foundation, said: “Today’s increase is consistent with the Bank’s view that inflation will surpass 7% this Spring, which could drive the deepest squeeze on living standards in six decades.”

In December, the BoE became the first major central bank to lift borrowing costs from record lows of 0.1% to 0.25%.

In February it doubled the rate from 0.25% to 0.5%, the second increase since the start of the pandemic, and the first back-to-back hike since 2004.

Read more: What higher inflation means for savers and investors

Current market pricing suggests interest rates will increase to 2% this year, the highest since before the global financial crisis.

Laith Khalaf, head of investment analysis at AJ Bell, said: "Indeed, the Bank of England reckons CPI inflation will be back to 2% by 2024. Inflation is extremely unpredictable, so it’s prudent to acknowledge that it might possibly tail off, though the Bank’s forecasting capabilities haven’t exactly won any awards in recent times.

He added: "The Ukraine crisis further muddies an already blurred picture. A Russian invasion would likely send gas prices even higher, which would increase inflationary pressures, but a conflict would also act as a brake on global economic growth, which should apply some downward pressure to the inflationary numbers. The result of these two opposing effects could still be stagflation, however.

Watch: How does inflation affect interest rates?