By Jason Douglas and Wiktor Szary
U.K. consumer prices rose in January at the fastest annual rate in two-and-a-half years, highlighting how the pound’s fall since June’s Brexit vote is increasingly weighing on the cost of everyday living.
The pound /zigman2/quotes/210561263/realtime/sampled GBPUSD +0.0157% slipped following the announcement.
Britain’s Office for National Statistics said Tuesday that annual inflation in the U.K. quickened to 1.8% in January from 1.6% in December, marking the fastest rate of growth in prices since mid-2014. This was slightly below the consensus for a rise of 1.9%.
The gain puts the Bank of England within reach of its 2% inflation goal, which it last hit in December 2013, and comes as Prime Minister Theresa May prepares to formally begin two-year withdrawal negotiations with the European Union.
Inflation is stirring across the developed world after a long spell of feeble price-growth that pushed central banks toward evermore radical stimulus measures. In the U.K., inflation’s revival is being fired further by a plunge in the pound since Britons voted to exit from the EU in a referendum in June.
The pound has shed some 15% of its value against the dollar since the day of the vote. Against a basket of currencies of the U.K.’s major trading partners, sterling is down 12%, a decline that is pushing up the cost of everything from Apple Inc. /zigman2/quotes/202934861/composite AAPL +3.75% smartphones to salty spread Marmite, a British breakfast staple. Sonos Inc., a Santa Barbara, Ca.-based maker of home-audio systems, said Monday that from Feb. 23 it will raise the U.K. price of its cheapest device by 18%, citing the weaker pound.
The ONS said Tuesday the increase in consumer prices in January was primarily driven by food and fuel. Data showed British companies’ costs continue to increase, which could foreshadow a further acceleration in consumer-price inflation in the coming months. Prices for imported materials surged 20.2% on the year last month—the fastest rate of growth since Sept. 2008.
Economists expect accelerating inflation in Britain to weigh on consumer spending in 2017. The European Commission said Monday it expects economic growth this year to slow to 1.5%, from 2% in 2016, as a consequence of weaker household spending, though it said the weaker pound should aid exports.
BOE Gov. Mark Carney has signaled that the central bank is prepared to tolerate an overshoot of its inflation goal if it helps keep the economy on an even keel as May negotiates the U.K.’s EU withdrawal, a process expected to conclude in spring 2019. But Carney has warned there are limits to that tolerance and the BOE may raise interest rates to keep prices in check if the economy proves resilient.