The Consumer Price Index was 1.2% up on the same time last year as the post referendum fall in sterling hit prices.
Markets were close to unmoved by the news however, with the FTSE 100 0.5% up at 6926 on Tuesday morning and the FTSE 250 0.2% up at 17,682.
The news that inflation has bounced back following a surprise price fall in October will give the Bank of England’s monetary policy committee food for thought, but commentators do not believe a rate rise is imminent.
“The inflation environment in the UK is under a degree of upward pressure from sterling’s devaluation and the recovery in the oil price but the broader macro environment is not conducive to accommodating such an impulse,” said Alex Brandreth, deputy chief investment officer at Brown Shipley.
“We are in a world where high debt levels mean that future purchasing and demand will be lower. In particular, concerns about Brexit will undermine the confidence companies have to pass on cost increases,” he continued. “You would expect to see the Bank of England increasing interest rates to ‘contain’ inflation. However, the Bank is looking through the current increase because it sees it as temporary and it is also concerned about stimulating growth in the underlying economy.”
Shilen Shah, bond strategist at Investec Wealth & Investment noted that the figure was ‘somewhat stronger than expected.’ “The two-year high in the CPI rate was largely caused by Sterling’s weakness and a higher oil price, with higher CPI prints likely in 2017. Given the upward pressure on inflation, the BoE’s move towards a more neutral policy stance is understandable given that it has indicated that its patience for inflation to overshoot the 2% CPI target is limited.”
