“Headline inflation rises above target with upward risks to the outlook on the increase” says Yael Selfin, Chief Economist at KPMG UK.
“While the rise in headline inflation was expected, reflecting Ofgem’s increase to the energy price cap, it may not be a one-off upward risk. Inflation is set to continue to rise over the coming months, driven by a pick-up in goods inflation, a more expansionary fiscal policy and less clear external environment.
“Today’s data will strengthen the Bank of England’s case to maintain its cautious approach. We expect the Bank to hold interest rates in next month’s meeting as it assesses the second-round effects of higher energy prices and the emerging upward risks to the outlook.
“Despite today’s increase in headline inflation, a recent slowdown in economic activity could put downward pressure on services inflation. However, higher labour costs could be at least partially passed on and the growing risk of trade fragmentation could see the pound weakening further.”
