The UK’s inflation rate increased from 2.5% to 3% in January, according to official figures.
That’s a blow to chancellor Rachel Reeves, considering its 0.5 percentage points above the Bank of England’s target of 2%.
The data from the Office for National Statistics (ONS) shows inflation is now at its highest level seen in the last 10 months – comparable to when the Tories were still in charge in March 2024.
It’s also higher than economists had been expected. They had predicted it would go up to 2.8%.
Inflation is the measure of how prices change over time. This increase means an item that was £1 a year ago would now cost £1.03.
However, January’s rate is still a long way off the height of the cost of living crisis, when it soared to 11.1% in October 2022, a 40-year high.
The ONS chief economist Grant Fitzner said the increase was down to a number of factors.
He said: “The rise was driven by air fares not falling as much as we usually see at this time of year, partly impacted by the timing of flights over Christmas and New Year.
“This was the weakest January dip since 2020.
“After falling this time last year, the cost of food and non-alcoholic drinks increased, particularly meat, bread and cereals.
“Private school fees were another factor, as new VAT rules meant prices rose nearly 13% this month.”
Labour has pledged to put economic growth at the heart of its government, but this rise in inflation might hinder that.
The Bank of England wants inflation to stay at its target of 2%, as that rate encourages the economy to grow but stops the public being priced out of the cost of living.
So this unexpected rise may deter the Bank from bringing down interest rates – the cost of borrowing – again, and that could impact economic growth, especially as the Bank just brought down the interest rates from 4.75% to 4.5% last month, in a bid to boost the very sluggish economy.
Reeves responded to the latest figures, saying that her “number one mission” is to get “more money in people’s pockets”.
“Since the election we’ve seen year on year wages after inflation growing at their fastest rate in three years – worth an extra £1,000 a year on average – but I know that millions of families are still struggling to make ends meet,” she said.
“That’s why we’re going further and faster to deliver economic growth.
“By taking on the blockers to get Britain building again, investing to rebuild our roads, rails and energy infrastructure and ripping up unnecessary regulation, we will kickstart growth, secure well paid jobs and get more pounds in pockets.”
Mel Stride, shadow chancellor, said: “Today’s figures mean further pain for family finances – and it’s thanks to the Labour chancellor’s record tax hikes and inflation busting pay rises.
“Labour were warned that their tax spending and borrowing spree would drive up inflation. It means higher prices in the shops, and interest rates staying higher for longer, causing mortgage misery for millions.
“This chancellor is out of her depth, and we’re all paying the price.”
Liberal Democrat leader Ed Davey said: “The chancellor’s misguided policies are putting us at risk of a new era of stagflation. The economy still isn’t growing, and now people are being hit in their pockets too.
“The Conservative government plunged Britain into a cost of living crisis, and Labour’s failures are just making the misery drag on and on.
“The government urgently needs to change course and take real action to get our economy growing strongly and bring down the cost of living, starting by cancelling their disastrous jobs tax and securing a much better trade deal with Europe.”