U.K. inflation accelerates above expectations in December

U.K. inflation accelerated above expectations in December, raising additional suspicions that the Bank of England might begin considering the requirement for higher interest rates later in 2017, noted IHS Markit chief economist Chris Williamson. The Office for National Statistics showed that consumer prices rose 1.6 percent year-on-year, as compared with November’s 1.2 percent recorded in November. This is the highest since July 2014.

The rise in inflation comes after warnings from Bank of England Governor Mark Carney that there are restrictions to the amount of inflation the central bank would  tolerate and the December inflation data would further boost suspicions that the next move in interest rates might be a rise. The economy has indicated surprising resilience in the latter half of 2016, with Brexit concerns brushed aside by consumers and several businesses.

Survey data indicated that the economic growth pace is accelerating to the most rapid pace for almost one-and-a-half years in December, pushing the rate of growth  up to levels seen with Bank of England considering higher interest rates.

“Inflation looks inevitably set to rise further in 2017, with 3% likely to be seen by the second half of the year. Whether the central bank will tolerate this level of inflation remains very uncertain, but will most likely depend on the extent to which consumers continue to spend in the face of Brexit worries and higher prices. At the moment, there seem to be few signs of any waning in households’ appetite to spend, but we suspect that spending will soon slow as the reality of higher prices starts to bite”, added Chris Williamson.