LONDON, March 18: The biggest one-month jump in Britain’s inflation rate for over 10 years in January has added some uncertainty to Tuesday’s inflation data, but most economists expect price rises to have moderated in February.

The average forecast of 13 economists polled by Reuters was for year-on-year RPIX — headline inflation minus the cost of home loans — to have slowed to 2.4 per cent in February from 2.6 per cent in January.

January’s surprise jump, up from 1.9 per cent in December, was only the second breach of the government’s 2.5 per cent target in the last 34 months.

That sudden surge has put normally confident economists on edge and led to some speculation that Britain’s long running period of extremely tame inflation could be coming to an end.

There is much more than the usual uncertainty over this month’s figures as it is unclear just how much of last month’s pick-up was genuine and sustained, Deutsche Bank said in a data research comment.

The higher-than-expected January inflation data hit UK government bond and interest rate future prices hard as markets began to anticipate rapid and aggressive interest rate hikes by the Bank of England.

But Bank of England Deputy Governor David Clementi, in a speech last week, made it clear that the Bank was in no hurry to raise rates from their current 38-year low of 4.0 per cemt.

It is quite possible that we may see rates at current levels for some time until the way ahead is clearer, he said.

After carefully dissecting January’s inflation figures, analysts found that seasonal food prices surged 4.2 per cent in January, compared with just 2.8 per cent in December. Most expect this component to show a smaller rise in February.

Discounting in the traditional January sales was also more moderate than a year ago.

This should mean that February’s price recoveries were more modest than last year, this time putting downward pressure on inflation, said Philip Shaw at Investec Bank in London.

Shaw stressed, however, that Britain’s underlying inflation pressures were probably a touch higher that the Bank of England had previously forecast.

In its Quarterly Inflation Report published last month the Bank said it expected RPIX to be below its 2.5 per cent target for most of the next two years.

The next two sets of inflation figures will be critical in determining the shape of the next projections in May and with it, whether the Bank is likely to begin raising (interest) rates by the end of the second quarter, he said.—Reuters