Households will be able to withstand interest rate hikes because Britain’s buoyant jobs market is boosting pay, according to a Bank of England official.
Gertjan Vlieghe, a member of the monetary policy committee that sets rates, said a pick-up in wages and an increase in household debt meant the economy was ‘ready for somewhat higher interest rates’.
His words were given substance by official data today showing that inflation remained obstinately at three per cent for a second consecutive month in January.
Ben Brettell, a senior economist at Hargreaves Lansdown, said that inflation’s had now been above target for 12 straight months. ‘This adds further weight to the case for higher interest rates sooner rather than later,’ he said.
January’s Consumer Price Index, set to be released on Tuesday, is expected to come in at 2.9 per cent, according to experts
Mr Vleghe insisted the 0.25 per cent rate rise in November to 0.5 per cent – the first for more than a decade – was not a one-off.
‘We are on a trajectory – it wasn’t one hike and then we take a very long break,’ Vlieghe said in a speech.
The comments followed a report last week by the Bank that set the scene for rates to rise again in May.
Bank of England rate-setter Gertjan Vlieghe.
The inflation data confirmed that there was no let up in rising prices for cash-strapped households in the new year, with millions likely to be feeling the pinch.
Entry fees for attractions such as zoos and gardens made a contribution to the headline inflation figure, with prices falling by less than they did last year.
Petrol prices continued to rise, although not to the same extent as this time last year, the Office for National Statistics figures revealed.
Inflation has been well above the Bank of England target of two per cent for some time now, starting in the the wake of the Brexit vote.
It peaked at 3.1 per cent in November and many experts had expected it to ease off a little once again in January to 2.9 per cent.
Inflation rose after the pound weakened following the Brexit vote, making imports more expensive.
Meanwhile consumer confidence in January experienced a surprising jump, rising to to 108.2 from 107.1 in December, according to the YouGov/Cebr Consumer Confidence Index.
Inflation remained flat in January at three per cent, latest official figures reveal Source: ONS
The last official CPI reading came in at 3 per cent in December, thanks to a drop in air fares which counted for a smaller slice of the basket of goods and services in 2017 than the year before.
Falling price tags on clothes and toys also pulled costs lower, while food and non-alcoholic drinks recorded smaller monthly growth.
Housing costs and transport were some of the greatest contributors to rising inflation
Britons are believed to have benefited from slower food price inflation, which surged in the wake of Brexit as a weak pound made imports more expensive
The Bank of England has said it wants inflation to return to its 2 per cent target within the ‘more conventional’ time frame of two years, rather than three.
While hikes are expected – forecast to reach 1.2 per cent by the start of 2021 – interest rates are currently being held at 0.5 per cent following a unanimous decision taken last week by the Bank’s rate-setting monetary policy committee.