Inflation jumps on food, air fares and school fees

The UK's inflation rate rose significantly in January, primarily due to increases in food prices, airfares, and private school fees. This higher-than-expected increase pushed the inflation rate from 2.5% in December to 3%, reaching its highest level in nearly 10 months. Many families are bracing for higher energy and water bills later this year, while the prices of basic food items like meat, eggs, butter, and cereals are all higher than they were a year ago.

The government has warned that the path back to lower inflation will be "bumpy." At the same time, rising food prices have caused the average cost of buying groceries to be 3.3% higher than a year ago. While many staples saw modest price increases, items like olive oil and lamb experienced more significant jumps, rising by 17% and 16% respectively.

The inflation rate, which measures the overall change in the cost of living over a year, has risen ahead of an expected increase in energy bills in April. Water bills and council tax will also rise in two months, which will add to household living costs. The government has increased the minimum wage for all age groups, and benefits and state pensions will also increase. However, some businesses warn that higher wages, as well as increases in national insurance, will mean higher prices for customers as companies try to recoup increased costs.

A young mother named Gaby Cowley said that "life is hard," telling the BBC that she is already "barely making ends meet," but food prices are now "ridiculous" – keeping her up at night. She said: "The food shop is almost double what it was three years ago. We're spending at least £90 a month now, and that doesn't include the £20-30 a week top-up for fruit, veg and milk." If spending exceeds income, Ms. Cowley says she sells her baby's old clothes "just to get a little bit of money to do things." She hopes the minimum wage increase will boost her wages, although she thinks the struggle is far from over.

In addition to food, airfares also contributed to inflation last month. According to the Office for National Statistics (ONS), airfares tend to rise in December and fall in January, but the fall was smaller than in previous years. The agency also said that private school fees rose by about 13% at the beginning of the year, due to the government's removal of tax exemptions, which increased VAT from January 1. The sharp rise in the inflation rate – previously expected to climb to 2.8% – has also sparked speculation about how the Bank of England will respond to interest rates.

High inflation, which peaked at 11.1% in October 2022 in recent years, led the central bank to raise interest rates, pushing up the cost of loans, credit cards and mortgages. As price increases slowed and borrowing costs fell, the Bank of England decided earlier this month to cut interest rates to 4.5%. But with interest rates still above the central bank's 2% target, some economists believe the pace of further rate cuts may slow. Professor Jonathan Haskel, a former member of the Bank of England's Monetary Policy Committee, told the BBC that policymakers could "take no signal from the inflation spike" and continue to cut rates gradually, or see it as "a harbinger of more to come" and change course.

ONS Chief Economist Grant Fitzner said that the impact on inflation from private schools' VAT charges taking effect last month was "one-off." But Sarah Coles, head of personal finance at Hargreaves Lansdown, said the threat of higher wage bills for supermarkets and producers means January's food price rises "are highly unlikely" to be the last. She said: "This is on top of rises in everything from water bills to council tax – which is why it's being called terrible April."

Treasury Secretary James Murray acknowledged that getting inflation back to the 2% target will be "bumpy." He said: "We are in a different world now than the world of a few years ago under the previous government, when inflation was routinely in double digits. The Bank of England have been clear that they expect inflation to be slightly higher in the first half of this year... but we are confident in our plan to make sure we grow the economy by making the reforms that are necessary to drive economic growth right across the country."

But Shadow Chancellor Mel Stride said Labour's "tax rises and inflation-busting wage increases" were to blame for January's rise in inflation. Liberal Democrat leader Ed Davey added: "The Chancellor's wrong policies risk us tipping into a new bout of stagflation. The economy is still not growing and now people's wallets are being hit too." Ruth Gregory, deputy chief UK economist at Capital Economics, said the January figures would be "unsettling" for the Bank of England, but she doubted it would prevent further rate cuts. "The risk is that the pick-up in inflation proves more persistent, and interest rates are lowered more slowly, or by less, than we anticipate," she added.