Rising food prices drove up inflation in January during the toughest coronavirus lockdown measures since the first wave of the pandemic.
The Office for National Statistics said the consumer prices index rose to 0.7% in January – from 0.6% a month earlier – as shops including food retailers and household goods stores pushed up their prices with less discounting this year on items such as beds and settees.
However, there were also widespread January sales as the closure of non-essential shops forced retailers to cut their prices to sell stock where possible, including for clothing and footwear.
Britain’s economy is expected to have plunged into reverse at the start of the year after narrowly escaping a double-dip recession, following the worst annual fall in gross domestic product for more than 300 years in 2020.
With business and social life disrupted by the pandemic, inflation has fallen below the Bank of England’s target rate of 2% amid depressed levels of demand for goods and services.
However, analysts said the inflation rate was likely to rise in the coming months, partly because the gauge measuring the annual growth of consumer prices would no longer be compared with pre-pandemic levels. That, and a 9% rise in the household energy price cap, is expected to lift inflation by the summer.
The ONS said the inflation rate was pushed up in January by the rising price of frozen fish fingers, vegetables such as cauliflowers, and premium crisps. The biggest contribution was from furniture retailers and household goods stores, where there was less discounting of leather settees, double beds and fitted sheets.
Andy King, the head of consumer price inflation at the ONS, said the end of the Brexit transition period appeared not to have had a noticeable impact on prices last month, despite border disruption in the first month since leaving.
“Overall, we didn’t see anything that jumped out to us as being a Brexit effect. There may be a number of factors to that. There were comments in the media about outlets looking to stockpile ahead of January but whether we’ll see anything when stockpiles diminish, though, obviously depends on costs. We only see prices to consumers, so it will also depend if companies choose to pass them on.”
Analysts said Brexit had the potential to push up prices for consumers in future. Sarah Coles, a personal finance analyst at the investment company Hargreaves Lansdown, said: “Supply chain problems aren’t set to ease any time soon. We’re also seeing global rises in the cost of shipping and commodities, which will feed into inflation eventually.”
Having risen during the pivotal Christmas shopping period as fashion retailers attempted to claw back losses from one of the hardest years in living memory for the high street, clothing prices fell by 4.6% between December and January as a result of increased discounting.
As the government prepares to announce measures to relax lockdown as progress is made with the vaccine programme, analysts say inflation is likely to rise further as the economy gradually reopens, driven by higher household savings in the crisis as people cut their spending.
However, rising unemployment and weaker household finances for many families, particularly those on low incomes, could keep a lid on demand as the economy takes time to recover from the biggest shock in centuries.
Hannah Audino, an economist at the accountancy firm PwC, said: “Consumers will likely see an increase in the price of things like petrol, utilities and services this year, as global demand for oil picks up and demand recovers for the service sectors most impacted by restrictions, along with the VAT cut for hospitality coming to an end in April.
“On the other hand, rising unemployment – expected with the end of the furlough scheme in April – will increase spare capacity in the labour market and subdue wage growth, putting downward pressure on prices.”