Inflation rises to 3%

Inflation rose to 3% in January according to the latest Consumer Price Index (CPI) data from the Office of National Statistics (ONS), its highest level in 10 months.

The increase in the annual rate of inflation marks a 0.5 percentage point rise on December’s figure, and has exceeded economists expectations, which had anticipated a rise to 2.8%.

With price rises having slowed since their peak in 2022, inflation on food and drink products quickened from 1.9% to 3.1%. This category had previously been contributing to reducing inflation, and will also make the most recent uptick in inflation more noticeable for household incomes. Other sectors that contributed significantly to the latest rise in inflation include transport costs and education.

The Bank of England earlier this month opted to cut interest rates to help stimulate economic growth, arguing that domestic inflationary pressures in the economy including wage growth had slowed sufficiently. With inflation having risen more quickly than expected, the Bank’s Monetary Policy Committee is unlikely to make another cut at its next meeting, with some analysts, including the BBC’s International Business Correspondent Theo Leggett, indicated the Bank may be forced to change its approach and raise interest rates again in response. The extent to which US President Trump’s plans to impose tariffs on some imports will influence inflation has also yet to be seen.

Alongside the UK, other major economies have also recorded rising inflation in recent months. January estimates for France and Germany have indicated inflation at 1.8% and 2.8% respectively, up from 1.4% and 1.8% in September 2024 when inflation in the UK was also at its lowest rate since 2021.

Commenting on the rise in inflation and its impact on businesses locally, Chris Fletcher, Policy Director at Greater Manchester Chamber of Commerce, said:

“There’s no doubt that the inflation figures make for grim reading. Prices were expected to rise but not at this rate. Our latest Quarterly Economic Survey shows that concerns about inflation grew substantially in Q4 last year and today’s news will only increase businesses worries.

“Energy prices are expected to increase in April and for most businesses they will also be having to contend with a spike in employment costs when the new Employer NIC rates start coupled with increases to the National Living Wage and Minimum Wage. The NIC increase is substantial and is the cost increase that is causing most concern with businesses with many seeing price rises as one way of offsetting the extra money they will have to find every month. For some businesses this equates to tens of thousands of pounds a year. Anyone with a basic understanding of business and economics will realise this will be inflationary.

“With the government’s growth mantra ringing in our ears this is looking an increasingly impossible task as real world impacts of various policies start to take hold. The government should revisit its plans, announced last October, and start to phase in what is, in effect, a huge increase in tax on jobs, whilst there is still time. Businesses understand the need to boost government revenue to help with growth, but not at the risk of wreaking havoc with the economy.”