UK CPI inflation in February likely to see another modest rise

UK inflation and retail sales will be the key releases in focus in the week ahead. Office for National Statistics data showed that UK headline inflation ticked up in January to 0.3 per cent year on year, the fastest rise for a year. Oil price declines that were much less severe than last year largely aided the rise.

For the month of February, lower annual rate of energy price decline is expected to help add an additional 0.1 percentage point to the headline inflation rate, pushing the year-on-year rise to 0.4 per cent from 0.3 per cent in Jan.  Though modest, it should be further evidence that UK inflation is finally on the turn.

Such low inflation numbers concern the Bank of England which has a mandate to keep inflation around 2 per cent. This could signal that monetary policy may need to be loosened and this will diminish any expectations that the BoE will raise rates this year.